Germany

2005 INVESTMENT CLIMATE STATEMENT -- GERMANY

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, 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 industry. 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 is currently beginning to address many of these problem areas through its "Agenda 2010" economic reform initiative. 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 economic law contains a provision permitting restrictions on private direct investment flows in either direction for reasons of foreign policy, foreign exchange, or 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 new 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 Labor Ministry, which then has one month in which to veto the sale. The transaction is regarded as approved if the Economics and Labor Ministry does not react in that time. Industrial policy considerations and lobbying by business interests have occasionally delayed decision-making on investment. There is no broad authority other than in the defense sector to screen or block foreign direct investment.

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 eleven other EU 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 but come up from time to time.  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.  For more information on Germany's law on arbitration, reformed in 1997, see http://www.internationaladr.com/tc121htm

Performance Requirements/Incentives

There are about 3,000 incentive programs for investors in Germany, offered by EU, federal, and state authorities. Cash Grants under the Joint Agreement for the Improvement of Regional Economic Structures are available for improving the structure of regional economies and the economy as a whole – a primary objective of the German federal and state governments. Distribution of these subsidies is generally subject to approval by the European Union. Cash grants approved and paid to investors under the Joint Agreement program from 1999 - 2001 totaled EUR 8.6 billion. The new Joint Agreement program for the period 2002 - 2006 has a provisional budget of EUR 8.1 billion for grants in both eastern and western Germany. The program is under review by the EU for the period after 2006 and some adaptations to timeframe and volume may ensue.

A comprehensive package of federal and state investment incentives is available to domestic and foreign investors. In some cases, there may be performance requirements tied to the incentive, such as maintaining a certain level of employment. 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 placed particular emphasis on investment promotion in the New States of the former East Germany and has offered a large number of incentives to this end. Ongoing efforts to reduce government budget deficits and EU efforts to reduce state aid to industry are putting pressure on these programs. Current programs are secured until the end of 2005 and negotiations are in progress to retain more favorable terms for investments in the New States vis-a-vis the western states, albeit at a lower level than in previous years. Although the accession of the new EU member states will put pressure on national and EU programs, the government hopes to be able to compensate any shortfalls in EU investment programs subsequent to 2006 with national programs in eastern Germany. A decision on continued EU subsidies and programs has not been made, but the government anticipates most regions in eastern Germany will continue to receive EU support granted for areas with pronounced development deficiencies beyond 2006. Available incentives currently include:

For the eastern German states and eastern Berlin:

• Tax Incentives: investment allowances, special depreciation allowance.
• Investment Grants: Improvement of Regional Economic Structures Program; grants for research and development; consulting fee and training costs; export, marketing and fair participation assistance.
• Credit Programs: loans at below-market interest rates from the government-owned Bank for Reconstruction (KfW) and its subsidiary the Mittelstandsbank; the European Recovery Program (ERP); EU programs; and loan guarantee and credit programs.
  

• Still applicable in 2005 are cash grants under the Joint Agreement. Investments in eastern Germany in particular profit from this program, with outright grants of 50% available to SME's (small and mid-size companies – defined by the EU as having fewer than 250 employees, a maximum turnover of 40 million Euro, or a balance sheet total of no more than 27 million Euro); larger firms receive grants of 35% of investment costs. As noted above, the EU is reviewing this program and while there may be cuts for some regions, by and large the program and grant volumes are expected to remain relatively constant after 2005.
• Tax Incentives: special depreciation allowance, capital reserve allowance.
• Investment Grants: Improvement of Regional Economic Structures Program, grants for research and development, consulting fees, and training costs.
• Credit Programs: loans at below-market interest rates from the Equalization Funds Bank, Reconstruction Funds Bank, the European Recovery Program, European Union programs, loan guarantee programs, and other programs for small technology firms and environmental demonstration projects.

Foreign Investors can obtain information specifically for the new states in eastern Germany from the respective investment promotion agency IIC (Industrial Investment Council):

Industrial Investment Council LLC
Charlottenstrasse 57
10117 Berlin
Telephone: [49][30] 2094-5660
Telefax: [49][30] 2094-5666
Email: info@iic.de
Internet: http://www.iic.de

Industrial Investment Council
700 13^th Street, NW
Washington, D.C. 20005-3960
Telephone: 202 347-7470
Telefax: 202 347-7473
Email: washington@iic.de
www.iic.de/iic/offices.0.html

American companies can, with effort, generally obtain the resident and spouse work permit visas they need 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.
 
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 have invested vast sums in that sector. Since then, former state monopoly Deutsche Telekom (DT) has lost more than 46% of the fixed-line market to competitors, although it still controls 86% 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 32% by 2004. 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. The German government continues to hold a 38% share in DT, although it has expressed its desire to sell these shares eventually.
 
Some competition has come to the gas and electricity markets since 1998 as well, but competitors have had enormous difficulty gaining access to the incumbents' networks. Competitors report Cartel Office rulings have not always been enforced in a timely manner.  Draft legislation is before parliament to give the telecommunications regulator (RegTP) authority to oversee gas and electricity markets, but it is still uncertain how much power the regulator will have. The government has missed the July 1, 2004 EU deadline for installing a regulator. Completing the legislation currently looks unlikely before mid-2005. The positive effects of energy liberalization have largely dissipated, as new entrants have exited the market and prices have moved above pre-liberalization levels.
 
The government partially privatized Deutsche Post (DP) in November 2000 and is slowly divesting its remaining shares in DP. However, the government decided to extend the DP monopoly in letter delivery until January 2008.  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. 

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. 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 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 to 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 comprehensive, although problems persist because of the difficulty of combating piracy of copyrighted works on the Internet.

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. Overall, the German economy is highly regulated, with 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.
 
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 IMF's assessment of the German financial sector in spring 2003, the so-called stress tests, found that the system is robust.   To improve their international competitiveness, the large private banks in particular have launched massive cost cutting programs.  Consolidation among the banks is continuing. Regional state banks have increased their cooperation with affiliated local savings banks in an effort to cut costs and remain competitive.  
 
At the end of September 2004, the total assets of 2,166 domestic banks were EUR 6.63 trillion.  The 255 reporting commercial banks accounted for 1.9 trillion Euro of this amount.  The four largest commercial banks (Deutsche Bank, Hypovereinbank, Dresdner Bank, and Commerzbank) accounted for nearly 58% of Germany's total commercial bank assets.
 
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.  Germany has a universal banking system that is effectively regulated by federal authorities. 
 
Given the prevailing overall economic conditions, mergers and acquisitions (M&A) have basically decreased over the last few years in line with global trends.  Recently, this development has been even more negative in Germany than elsewhere.  However, experts expect that M&A transactions will pick up again in the foreseeable future.  "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 plans to introduce legislation by mid-2006 to establish an orderly and transparent process for takeovers. 
 
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 prospectuses on an EU-wide basis.
 
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 investors.

Corruption

Among the industrialized nations, Germany ranks in the middle field, 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 applying to support extended by the official export credit agency and 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, however, differ on the effectiveness of these steps, particularly in the area of foreign corruption. German industry opposes creation of a central, national-level register of corrupt companies that would be barred from bidding for public contracts. Draft legislation to create such a register failed to pass parliament in 2002. Nevertheless, some individual states maintain their own registers and pressure is growing to reintroduce such legislation on the federal level. Transparency Deutschland, the German Chapter of Transparency International, sees a national corruption register as one of its main goals in Germany, closely followed by Freedom of Information legislation on the federal and state level, and a speedy ratification of the UN Anti-Corruption Convention placing bribery of parliamentarians on the same level as bribery of public officials. The German government has successfully prosecuted hundreds of domestic corruption cases over the years. Numbers rose especially significantly in the last two years. To date, charges have been filed in only one case involving the bribery of foreign government officials since the 1999 changes in German law to comply with the OECD Anti-Bribery Convention were enacted.

Bilateral Investment Treaties

Germany has treaties in force with 120 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: Albania; Algeria; Antigua and Barbuda; Argentina; Armenia; Azerbaijan, Bangladesh; Barbados; Belarus; Benin; Bolivia; Bosnia and Herzegovina*; 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; Gabon; Georgia; Ghana; Greece; 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; Namibia; Nepal; Nicaragua; Niger; 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 and Montenegro*; 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: Asterisk * denotes treaty in force with predecessor state; Asterisks ** denote continued application of treaties with former entities, which have 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
Angola	10/30/2003	No
Botswana	05/23/2000	No
Brazil	09/21/1995	No
Burkina Faso	10/22/1996	Yes
Ethiopia	01/19/2004	No
Gabon (new/revised)	09/15/1998	No
Israel	06/24/1976	Yes
Libyan Arab Jamahiriya	10/15/2004	No
P.L.O. for the Benefit of	07/10/2000	No
the Palestinian Authority

Germany has signed, but not yet ratified, treaties with the following 10 countries/territories. These include new treaties signed with some of the countries of the former Soviet Union and former Yugoslavia, which also remain listed above, as prior treaties with these entities remain in effect.

Country	Signed	Temporarily Applicable
Bosnia and Herzegovina	10/18/1901	No
Brunei	03/30/1998	No
Kyrgyzstan	08/28/1997	*
Iran (new treaty)	08/17/2002	*
Morocco (new treaty)	08/06/2001	*
Mozambique	03/06/2002	*
Nigeria	03/28/2000	No
Palestine	07/10/2000	No
Tajikistan	03/27/2003	*
Thailand (new/revised)	06/24/2003	*

(*) Previous treaties apply

Protocols of modification to existing treaties with the following countries have been signed but are not yet in force:

Country	Signed	Temporarily Applicable
Poland	05/14/2003	No
Moldova	08/26/2003	No

Germany does not have a bilateral investment treaty with the United States. 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 to their respective federal income taxes for 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.
                                                                    
OPIC and other Investment 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.

Labor

The German labor force is generally highly skilled, well educated, disciplined, and very productive. However, the performance of the German labor market since the late 1990s, as measured by the level and growth of job creation and unemployment, has been weaker than in many comparable countries. Compared to other OECD countries, Germany has lower than average workforce participation rates (in part due to traditionally lower rates for women in the western German labor force) and lower levels of employment. In addition, factors such as limited acceptance of older workers as well as “structural mismatches” in the supply and demand of skilled workers contribute to Germany’s persistently high unemployment (10.5% average in 2003, according to national calculation methods, 9.6% by OECD standards). The portion of those among the unemployed classified as long-term unemployed (i.e., over one year) is high (35%, 2003 average). Unemployment is particularly high among low-skilled and older workers. The latter are often “pushed,” through early retirement or restructuring programs, from the primary labor market into the social welfare system.

Among the most important reasons for Germany’s high unemployment are macroeconomic stagnation, the declining level of domestic plant investment, company restructuring, flat domestic consumption, structural rigidities in the labor market, and high interest rates. (Set by the ECB, interest rates respond to inflation in all EU countries but appear high in relation to Germany’s generally lower inflation levels.) Within the labor market itself, another factor in this development is the difficult situation in eastern Germany, where unemployment remains nearly twice as high as in western Germany, in part due to factors resulting from its years of Communism.

Long-standing structural problems are a key issue affecting the German labor market. German wages and fringe benefits are among the highest in the world, and generous unemployment benefits reduce the incentive for Germans to take those lower-paying jobs that are available. Comparatively strong protection against dismissals, coupled with strict regulation of fixed-term and temporary employment contracts, protects a company’s core work force but hampers the transparency of the employment system and leads to segmentation of the labor market by age, gender and skills. This development has mainly affected young people and women and increases the risk of long-term unemployment. The ineffectiveness of Germany’s various labor market programs, e.g., the past situation of too much emphasis on providing assistance to the unemployed and too little emphasis on incentives for work, is another factor contributing to unemployment.

The effects of Germany’s system of wage determination through multi-company, industry-wide contracts are mixed. 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. In all of Germany, 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 at all covered. A comparison between western and eastern Germany shows that 66.6% of the firms in the east are not covered by a collective agreement vs. 47.5% of the companies in the west. In terms of workers covered by a collective agreement for all of Germany, 73.6% of workers are covered, while 26.4% are uncovered. Again, the coverage is higher in the west than in the east (75.8% vs. 63.2%).

Under its “Agenda 2010” reform program, the Schröder government has initiated long-needed structural reforms, made cuts in the social insurance system, and expedited tax cuts to spur the economy. The program is also designed to begin to address some rigidities in German labor markets, particularly for smaller enterprises. A number of reforms were enacted by the end of 2003 or are in the process of being implemented, but their success is not yet assured. An overriding goal of the steps taken to date is to reduce labor costs for employers. The reforms in the healthcare and pension systems also seek to limit impending sharp increases in public spending as the post-World War II baby boom generation ages and retires.

The country’s system combining on-the-job and in-school training for apprentices produces many of the skills employers need. There are rigidities in the training system, e.g., rules that are in effect protective, 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. The problem of too few slots led in June 2004 to a voluntary commitment by companies to step up the number of apprenticeships for young people over the next three years.

Despite continuing overall high unemployment, serious labor shortages exist in many high-skilled fields. The German government has tried to address these shortages through a “Green Card” program that has made available 20,000 work visas to foreign IT workers. In addition, a new immigration law went into effect January 1, 2005, easing the entry of highly qualified immigrants and promoting their integration into German society.

About 28% of the workforce is organized into unions. The overwhelming majority is in eight unions largely grouped by industry or service sector. These unions are affiliates of the German Trade Union Federation (DGB). Other unions exist but are of minor importance. Since peaking at more than 13 million members shortly after German re-unification, membership in organized labor has steadily declined to about 9 million at the end of 2003.

Unions’ right to strike and the employers’ right to lockout are protected in the German constitution. Court rulings over the years have limited management recourse to lockouts, however. Labor-management agreements have resulted in relatively few work stoppages (in 2003 about 1 day of work lost per 1000 workers).

Works councils represent the interests of workers vis-à-vis their employers. A works council may be elected in all private companies employing at least five people. The rights of the works council cover 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 eight free ports in Germany established and operated under EU Community law: Bremen, 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 German Bundesbank (central bank), foreign direct investment in Germany in 2003 declined to USD 12.9 billion (EUR 11.4 billion) – a little more than half of the 2001 level of USD 21.1 billion (EUR 23.6 billion) and almost two-thirds less than the 2002 high of USD 36.2 billion (EUR 38.3 billion). In GDP terms, 2003 flows of foreign direct investment represented 0.6 % of Germany's GDP, while the total stock of foreign direct investment in 2003 equaled 26.1% of GDP.

Foreign investment has been particularly strong in eastern Germany where about 1 trillion Euro have been invested since 1991, the majority, an estimated 84%, from private, non-government sources. Some 2,000 foreign companies, including 300 U.S. firms, have invested in eastern Germany since reunification.

In terms of Germany’s own foreign direct investment levels, the Bundesbank reports that, from a peak of over USD 106.5 billion (EUR 100 billion) in 1999, flows of German direct investment abroad plunged to USD 2.6 billion (EUR 2.3 billion) in 2003, compared to USD 36.9 billion (EUR 41.2 billion) in 2001 and USD 8.7 billion (EUR 9.2 billion) in 2002.

According to the Bundesbank, flows of German direct investment into the United States in 2003 amounted to USD 5.4 billion (EUR 4.8 billion), while U.S. direct investment flows to Germany were USD 5.7 billion (EUR 5.0 billion). The 2003 total accumulated stock of German direct investment in the United States amounted to USD 177.6 billion (EUR 157 billion), while the stock of U.S. direct investment in Germany amounted to USD 83.1 billion (EUR 74 billion).

Germany's International Investment Position (EUR billion)

Calendar Year	2001	2002	2003
German Direct Investment Abroad	41.2	9.2	2.3
Direct Foreign Investment In Germany	23.6	38.3	11.4

(Source: Deutsche Bundesbank)

Foreign Direct Investment in Germany by Sector (2002 – EUR million)

Holding Companies	23,012
Chemical Industry	4,770
Data Processing	2,151
Services	1,821
Credit and Banking	1,453
Media	1,312
Automobiles and Parts	896
Electric Power Equipment, distribution	646
Insurance	549
Medical-, Measuring equipment, Optics	439
Rubber and Plastic	121
Machine Tools	67

(Source: Deutsche Bundesbank; figures omit reinvested earnings)
Top 20 U.S. Companies in Germany in 2003 (ranking by sales):

1. Ford-Werke AG	11. Wal-Mart Germany GmbH & Co.
2. Opel AG	12. Proctor & Gamble Holding GmbH
3. Exxon Mobil Central Eur. GmbH	13. Intel GmbH
4. IBM Deutschland GmbH	14. Motorola GmbH
5. Phillip Morris GmbH	15. McDonald's Deutschland Inc.
6. GE Central Europe	16. Deere and Company - Europe Ofc.
7. Hewlett-Packard GmbH	17. Tyco Electronics Corporation
8. Conoco Philips Continental GmbH	18. Kraft Foods Gruppe Deutschland
9. Ingram Micro GmbH	19. Microsoft GmbH
10. Dow Gruppe Deutschland	20. Goodyear Dunlop Tires Germany

(Source: American Chamber of Commerce in Germany)