2014 Investment Climate Statement - Germany

2014 Investment Climate Statement
Bureau of Economic and Business Affairs
June 2014
Report
   

Executive Summary

As the largest market in Europe, Germany is a major destination for foreign direct investment, and a vast FDI stock has accumulated over the last decades. The United States is the leading source of inward investment to Germany. In surveys, Germany is ranked as one of the most attractive destinations for FDI, thanks to reliable infrastructure, a qualified workforce, a positive social climate, stable legal environment and quality research.

The German legal, regulatory and accounting systems can be complex, but are transparent and consistent with international norms. Businesses enjoy considerable freedom within a well-regulated environment. Investors are treated equally when it comes to investment incentives, establishment, and protection of real and intellectual property,

Foreign investors can fully rely on the legal system which is efficient and sophisticated. At the same time, this system requires investors to pay attention to their legal obligations. First-time investors will need to ensure that they have the necessary legal expertise either in-house our outside to meet all requirements.

Germany has effective capital markets and relies heavily on its modern banking system. State-owned enterprises are mainly in charge of supplying municipal water, energy and national rail transportation.

The primary objectives of government policy are to create jobs and foster economic growth. Labor unions play a constructive role in collective bargaining agreements as well as on companies’ work councils.

Germany continues efforts to deal with weaknesses in the system to fight money laundering and corruption. Medium-sized companies are increasingly aware of corporate social responsibility.

Despite the fact that Germany has 131 investment protection agreements in force, the launch of the negotiations of the Transatlantic Trade and Investment Partnership has triggered a public debate on investor state dispute settlement mechanisms.

1. Openness To, and Restrictions Upon, Foreign Investment

Attitude Toward FDI

Germany has an open and welcoming attitude towards foreign direct investment (FDI). For many decades, Germany has consistently experienced significant inbound investment. It is widely recognized that foreign investment has been a considerable contributor to Germany’s growth and prosperity. The German government and industry actively encourage foreign investment. U.S. investment has been strong and continues to account for a large share of foreign investment. The investment-related problems foreign companies 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 government has begun to address many of these problem areas through reform programs.

Other Investment Policy Reviews

Germany has not undergone investment policy reviews by the OECD, UNCTAD or WTO.

Laws/Regulations of FDI

Companies and entrepreneurs can count on a reliable legal system. The legal framework is solid and enforcement is effective. The judiciary is independent, and judges are highly professional. 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 United States and Germany. Germany subscribes to the OECD National Treatment Instrument and the OECD Codes of Liberalization of Capital Movements and of Invisible Operations. In 2013, the Capital Investment Code replaced the German Foreign Investment Act and the Foreign Trade and Payments Act and the Foreign Trade and Payments Ordinance were amended.

Industrial Strategy

The German government does not have a deliberate policy to attract investment in specific industry sectors, but has more generous incentives available for investments into research and development (see section 5).

However, Germany Trade & Invest promotes Germany as a business and technology location to attract foreign investors. Germany Trade and Invest considers four sectors as ‘most sought after’ in 2013: Renewable energy and resources, chemicals and health technologies, mechanical and electronic technologies and services (industrial equipment). Germany Trade & Invest has about 50 offices worldwide including in Chicago, New York, San Francisco, Toronto and Washington. Germany Trade & Invest has specialized experts for all industries. Germany Trade & Invest's information and consulting services also include:

  • Market and industry reports
  • Market entry analyses
  • Business and tax law information
  • Business and labor law information
  • Funding and financing information

More information is available on http://www.gtai.de/GTAI/Navigation/EN/invest.html .

Limits on Foreign Control

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, in practice no such restrictions have been imposed.

German law provides foreign investors national treatment: under German law, a foreign-owned company registered in the Federal Republic of Germany (FRG) as a GmbH (limited liability company) or an AG (joint stock company) is treated the same as a German-owned company. There are no special nationality requirements for directors or shareholders.

Privatization Program

There is no privatization program ongoing. As a matter of principle, Germany treats foreigners equally in privatizations.

Screening of FDI

Until 2004, Germany had no special legislation impacting foreign direct investment beyond general restrictions. A national security screening mechanism was introduced in 2004, which requires that investors from countries other than the member states of the European Union (EU) and the European Free Trade Association (EFTA, i.e., Liechtenstein, Iceland, Norway and Switzerland) notify the government of the acquisition of any business engaged in manufacturing or developing war weapons or armaments, or producing cryptographic equipment, in cases where the investor directly or indirectly owns 25 percent or more equity. In such cases, investors must notify the Federal Ministry of Economics and Energy, which then has one month to raise objections. If none are raised within that time, the transaction is regarded as approved. Germany expanded the scope of the law in 2005 to include tank and tracked-vehicle engines.

In the wake of broader discussions on the need for restrictions to foreign investment by sovereign wealth funds, the German Foreign Investment Act was amended in 2009 to apply to a German company of any size or sector in cases where a threat to national security or public order is perceived. The more generic character of this amendment has raised some uncertainty over which transactions should be notified. To date, the government has not made use of it to impose any restrictions. In 2013, the Capital Investment Code replaced the German Foreign Investment Act.

Competition Law

German government ensures competition on a level playing on the basis of two main legal codes:

The Law against Limiting Competition (amended last in 2013) is the legal basis for the fight against cartels, merger control and monitoring abuse. State and Federal cartel authorities are in charge of enforcing anti-trust law. In exceptional cases the Minister for Economics and Energy can provide a permit under specific conditions; the last case was a merger of two regional hospitals in 2008.

The Law against Unfair Competition (amended last in 2013) can be invoked in front of the regional courts as courts of first instance.

Investment Trends

In the last ten years, inward FDI stocks in Germany nearly doubled. While FDI so far mainly originated from other European countries and the United States, FDI from emerging economics, in particular China, has grown substantially since 2005, even if from a low level.

Table 1

TABLE 1: Indices and rankings for Germany

Measure

Year

Rank or value

Website Address

TI Corruption Perceptions index

2013

(12 of 177)

http://cpi.transparency.org/cpi2013/results/

Heritage Foundation’s Economic Freedom index

2013

(18 of 177)

http://www.heritage.org/index/ranking

World Bank’s Doing Business Report “Ease of Doing Business”

2013

(21 of 189)

http//doingbusiness.org/rankings

Global Innovation Index

2013

(15 of 142)

http://www.globalinnovationindex.org/content.aspx?page=gii-full-report-2013#pdfopener

World Bank GNI per capita

2012

USD amount 44.260

http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

2. Conversion and Transfer Policies

As a member of the Eurozone, Germany uses the euro as its currency, along with 17 other European Union countries. The Eurozone has no restrictions on the transfer or conversion of its currency, and the exchange rate is freely determined in the foreign exchange market.

Germany does not engage in currency manipulation. It was included in the U.S. Treasury’s Semiannual Report on International Economic and Exchange Rate Policies in October 2013. Treasury wrote that Germany’s “anemic pace of domestic demand growth and dependence on exports” has led to a deflationary bias in the Eurozone and the overall global economy. German policymakers rejected Treasury’s inclusion of Germany in the report, arguing that the country’s large current account surplus is the result of market forces rather than active government policies, particularly since Germany, as a Eurozone member, does not control its monetary policy or its exchange rate. Private sector German economists argue that the current account surplus is mainly due to a lack of domestic investment in Germany, as German firms prefer to invest abroad.

Germany is a member of the Financial Action Task Force (FATF) and is committed to further strengthening its national system for the prevention, detection and suppression of money laundering and terrorist financing. The last FATF report in 2010 states that Germany has introduced a number of measures to strengthen its regime for anti-money laundering and the combating of terrorist financing. Germany has generated a relatively large number of prosecutions for money laundering and orders to confiscate assets. The anti-money laundering and counter-terrorist financing framework is not fully in line with the FATF recommendations, as there are weaknesses in the legal framework and in sanctioning for non-compliance with anti-money laundering and counter-terrorist financing requirements. In April 2014, the Finance Minister urged the Justice Minister to initiate concrete measures to prevent that Germany is put on the OECD’s enhanced follow-up list.

According to the International Narcotics Control Strategy Report (INCSR), Germany is attractive to organized criminals and tax evaders, because it is one of the largest financial centers in Europe, and it uses a widely available currency. Many indicators suggest Germany is susceptible to money laundering and terrorist financing because of its large economy, advanced financial institutions, and strong international linkages. In 2011, 903 of the 1070 cases prosecuted for money-laundering resulted in convictions. In 2012, the German Parliament passed an amendment to Germany’s Law Against Money Laundering to tighten control over the increasing number of casinos and slot machines and to regulate online gaming, which had previously been prohibited in Germany.

Foreign Exchange

There is no difficulty in obtaining foreign exchange.

Remittance Policies

There are no restrictions or delays on investment remittances or the inflow or outflow of profits.

3. 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.

There have not been expropriatory actions in the last five years and none are expected for the near future. Remaining expropriation cases date back to the Nazi and communist regimes. During the financial crisis, the parliament adopted a law allowing an emergency expropriation if the bankruptcy of a bank had endangered the entire financial system, but the measure expired without having been used.

4. Dispute Settlement

Legal System, Specialized Courts, Judicial Independence, Judgments of Foreign Courts

German law is both predictable and reliable. Companies can effectively enforce property and contractual rights under German law. Germany’s well-established enforcement laws and official enforcement services ensure companies/investors to consistently assert their rights. German courts are fully available to foreign investors in the event of an investment dispute.

The judicial system is independent, and the federal government does not interfere in the court system. The legislature sets the systemic and structural parameters, while lawyers and civil law notaries use the law to shape and organize specific situations. Judges are highly competent. International studies and empirical data have attested that Germany offers an efficient court system committed to due process and the rule of law.

In Germany, all important legal issues and matters are governed by comprehensive legislation in the form of statutes, codes and regulations. The most important legislation in the area of business law includes:

  • the Civil Code (Bürgerliches Gesetzbuch, abbreviated as BGB), which contains general rules on the formation, performance and enforcement of contracts and on the basic types of contractual agreements for legal transactions between private entities;
  • the Commercial Code (Handelsgesetzbuch, abbreviated as HGB), which contains special rules concerning transactions among businesses and commercial partnerships;
  • the Private Limited Companies Act (GmbH-Gesetz) and the Public Limited Companies Act (Aktiengesetz), covering the two most common corporate structures in Germany – the ‘GmbH’ and the ‘Aktiengesellschaft’; and
  • the Act on Unfair Competition (Gesetz gegen den unlauteren Wettbewerb, abbreviated as UWG), which prohibits misleading advertising and unfair business practices.

Germany has specialized courts for administrative law, labor law, social law, finance or tax law. The Federal Patent Court hears cases on patents, trademarks and utility rights which are related to decisions by the German Patent and Trademarks Office. Both the German Patent Office (Deutsches Patentamt) and the European Patent Office are headquartered in Munich.

Bankruptcy

German insolvency law, as enshrined in the Insolvency Code, does much to support and promote restructuring. If a business or the owner of a business becomes insolvent, or a business is over-indebted, insolvency proceedings can be initiated by filing for insolvency; legal persons are obliged to do so. Insolvency is not a crime but prosecutors must check for certain types of deliberate behavior.

With a regular insolvency procedure, the insolvent business is generally broken up in order to release as much money as possible through the sale of individual items or rights or even of parts of the company. Proceeds can then be paid out to the creditors in the insolvency proceedings. The distribution of the monies to the creditors follows the detailed instructions of the Insolvency Code.

Equal treatment of creditors is enshrined in the insolvency code. Some creditors have the right to claim property back. Especially suppliers have secured rights. Post-adjudication preferred creditors are served out of the insolvency assets during the insolvency procedure. Ordinary creditors are served on the basis of quotas form the remaining insolvency assets. Secondary creditors, including shareholder loans, are only served if insolvency assets remain after all others have been served. Germany ranks 13 in the category resolving insolvency of the World Bank’s Doing Business Report with a recovery rate of 82.9.

According to the European Insolvency Regulation, known foreign creditors in EU member states are supposed to be informed individually about deadlines.

Investment Disputes

Investment disputes involving U.S. or other foreign investors in Germany are extremely rare. According to the UNCTAD database of treaty based investor dispute settlement cases, Germany was challenged three times.

There is no reliable information available about the year 2000 case initiated by Indian lawyer Ashok Sancheti.

In 2009 Swedish energy company Vattenfall brought the government of Germany to arbitration at the International Centre for the Settlement of Investment Disputes (ICSID) under the Energy Charter Treaty. The claim was related to the delay in obtaining, restrictions on and monitoring of a permit for using water from the river Elbe for cooling a coal power-plant in Hamburg-Moorburg. The case ARB/09/6 was settled on the condition of implementing a settlement of the Hamburg Higher Administrative Court stipulating a modified water permit and the construction of a hybrid discharge cooler. Environmental groups opposed the construction of the coal power plant from the beginning and have used different means (petitions, protest, press, lawsuits) to prevent the coal power plant from being connected to the grid. These groups submitted a comment to ICSID, contesting that the restrictions were an indirect expropriation. After the award, the environmental groups argued that the ICSID procedure lead to the water authority reducing the environmental standard of the water permit.

In 2012, Vattenfall filed a request for ICSID arbitration, after the government of Germany decided to phase out nuclear energy. The case is pending and has generated immense public interest in the negotiations of the investment chapter in the Transatlantic Trade and Investment Partnership. Some non-governmental organizations argue that German energy providers, who are affected by the nuclear phase out, are discriminated against because they are limited to national courts.

International Arbitration

Given the lack of historical evidence, it is unknown how authorities and courts would react to a real foreign arbitral award.

Germany does not have a bilateral investment treaty with the United States; however, a Friendship, Commerce and Navigation (FCN) treaty dating from 1956 remains in force. Currently, USTR and the European Commission’s Directorate-General for Trade are negotiating a Transatlantic Trade and Investment Partnership including an investment chapter.

Book 10 of the German Code of Civil Procedure is on arbitration proceedings. Germany has a domestic arbitration body called German Institution for Dispute Settlement. The International Chamber of Commerce has an office in Berlin. In addition, chambers of commerce and industry offer arbitration services.

ICSID Convention and New York Convention

Germany is a member of the International Center for the Settlement of Investment Disputes (ICSID) since 1969, as well as a member of the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards since 1961. In 1964 Germany adopted a law on the European Convention on International Commercial Arbitration.

Duration of Dispute Resolution

The average duration of proceedings in courts of first instance is 4.5 months and in regional courts 7.9 months. Given the lack of historical evidence, the duration of litigation pursuant to the New York Convention cannot be commented upon.

5. Performance Requirements and Investment Incentives

WTO/TRIMS

Germany is in compliance with its WTO Trade-related Investment Measures (TRIMs) obligations.

Investment Incentives

The EU, federal and state authorities offer a broad range of incentive programs for investors in Germany. Cash Grants under the Joint Task for the Improvement of Regional Economic Structures, a program administered by the Ministry of Economics and Energy, is one instrument available for improving the infrastructure of regional economies and the economy as a whole – a key objective for Germany’s federal and state governments. The government has promoted investment in the former East Germany and offers several programs only in these regions. The primary 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.

A comprehensive package of federal and state investment incentives, including cash, labor-related and R&D incentives; interest-reduced loans, and public guarantees is available to domestic and foreign investors alike. Investment incentives and operational incentives can be combined.

Foreign investors are generally subject to the same eligibility conditions as German investors for incentive programs:

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 level of economic development of the region, with up to 30% of eligible expenditures channeled to large enterprises, 40% to medium-sized enterprises, and 50% to small enterprises. An extension of this grant program for the timeframe July 2014-2020 is currently in preparation.

Credit Programs: Loans at below-market interest rates from the KfW banking group and state development banks, partially targeting small and medium-sized enterprises (SMEs).

Public guarantees: Loan guarantees of up to 80% of the loan amount from state governments or in the case of Eastern Germany from state and federal government for companies that do not have the collateral that private-sector banks ordinarily require.

Labor-related incentives: Support from over 800 local job centers of the Federal Employment Agency for programs that focus on recruitment support, pre-employment training up to 100% for up to three months, wage subsidies for unemployed candidates for up to 12 months, and on-the-job training up to 50%.

Germany Trade & Invest provides incentives information and consulting http://www.gtai.de/GTAI/Navigation/EN/Invest/Investment-guide/incentive-programs.html .

Research and Development

R&D Incentives are provided by the European Union, the German Government and the German state government in from of R&D grants, reduced-interest loans, and special partnership programs. Grants for R&D projects under the EU program Horizon 2020 require transnational cooperation.

Performance Requirements

There are no requirements for local sourcing, export percentage, or local or national ownership. In some cases, there may be performance requirements tied to the incentive, such as creation of job creation or maintaining a certain level of employment for a prescribed length of time.

U.S. companies can generally obtain the resident visas and spousal work permits they require to do business in Germany. Some effort and paperwork is required, but the relevant laws are quite broad, and considerable administrative discretion is exercised in their application. Citizens from the United States may apply for work and residential permits from within Germany. A number of U.S. states have not yet concluded reciprocal agreements with Germany to recognize one another’s driver's licenses. As a result, licenses from those states are not legal in Germany beyond six months, whereas licenses from states that have signed agreements can be converted to German licenses after six months.

Data Storage

There are no localization requirements for data storage in Germany. However, after the NSA allegations, German/European cloud providers have been trying to use the location of their servers as a competitive advantage.

6. Right to Private Ownership and Establishment

With a few exceptions, all foreign and domestic entities have the right to establish and own business enterprises, engage in all forms of remunerative activity, and to acquire and dispose of interests in business enterprises. In the case of airline ownership, an exception based on EU regulations requires EU majority ownership of shares in order to obtain an operating permit as an EU airline.

7. Protection of Property Rights

The German constitution guarantees property.

Real Property

The German Government adheres to a policy of national treatment, which considers property owned by foreigners as fully protected under German law. In Germany, mortgages are given based on recognized and reliable collateral. Secured interests in property, both chattel and real, are recognized and enforced. According to the World Bank’s Doing Business Report it takes 40 days to register property in Germany.

The shadow economy (i.e. all illegal economic activities, including moonlighting) is estimated to range at around 13% of total economic output or €344 billion. The Ministry of Finance estimates that the sector harms the economy every year by around €70billion.

The German Land Register Act dates back to 1897 and has last been amended in 2013. The land register mirrors private real property rights provides information on the legal relationship of the estate. It documents the owner, rights of third persons, liabilities and restrictions and how these rights relate to each other. Any change in property of real estate must be registered in the land registry to make the contract effective. Land titles are now maintained in an electronic database and can be consulted by persons with a legitimate interest.

Intellectual Property Rights

Germany boasts a robust regime to protect intellectual property rights. Legal structures are strong and enforcement is good. Nonetheless, internet piracy and counterfeit goods remain an issue.

Germany is a member of the World Intellectual Property Organization (WIPO) since 1970. 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. Many of the latest developments in German IP law derived from European legislation with the objective to make applications less burdensome and allowing for European IP protection.

The following types of protection are available:

Copyrights: National treatment is also granted to foreign copyright holders, including remuneration for private recordings. Under the TRIPS agreement, Germany also grants legal protection for U.S. performing 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 effective. In 2008, Germany implemented the EU enforcement directive with a national bill, thereby strengthening the privileges of rights holders and allowing for improved enforcement action.

Trademarks: Foreigners may register trademarks subject to exactly the same terms as German nationals at the German Patent and Trade Mark Office. Patents are granted for technical inventions which are new, involve an inventive step, and are industrially applicable. Protection is valid for a period of ten years and can then be extended for another ten years.

Patents: Foreigners may register patents subject to exactly the same terms as German nationals at the German Patent and Trade Mark Office. However, applicants having neither a domicile nor an establishment in Germany must appoint a patent attorney in Germany as a representative filing the patent application. The documents must be submitted in German or with a translation into German. The duration of a patent is 20 years, beginning on the day following the invention patent application. Patent applicants can request accelerated examination when filing the application provided that the patent application was previously filed at the U.S. patent authority and that at least one claim had been determined to be allowable. There are a number of differences in patent law which a qualified patent attorney will explain to U.S. patent applicants.

Trade Secrets: Trade secrets both technical and commercial are protected in Germany by the Law Against Unfair Competition. Currently, the EU institutions are discussing a directive to harmonize protection of trade secrets across EU member states.

In addition, the German law offers the possibility to register designs and utility models.

For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en .

Resources for Rights Holders:

Contact at Mission

  • NAME:
  • TITLE: Minister Counselor for Commercial Affairs
  • TELEPHONE NUMBER: +49-(0)30-8305-1900
  • EMAIL ADDRESS: office.berlin@trade.gov

Country resources:

For additional information about how to protect intellectual property in Germany, please see Germany Trade & Invest website at http://www.gtai.de/GTAI/Navigation/EN/Invest/Investment-guide/The-legal-framework/patents-licensing-trade-marks.html .

Investors can identify IP lawyers in AmCham’s Online Services Directory: http://www.amcham.de/services/online-services-directory.html (Type in “intellectual property” as keyword and tick the box “legal references”.)

Businesses can as well join the Anti-counterfeiting Association (APM) http://www.markenpiraterie-apm.de/1-1-The-German-Anti-Counterfeiting-Association-APM.html or the Association for enforcing copyrights (GVU) http://www.gvu.de/1_Startseite.htm .

8. Transparency of the Regulatory System

Germany has transparent and effective laws and policies to promote competition, including anti-trust laws. The legal, regulatory and accounting systems can be complex but are transparent and consistent with international norms.

Formally, the public consultation by the federal government is regulated by the Joint Rules of Procedure, which specify that ministries must consult early and extensively with a range of stakeholders on all new legislative proposals. In practice, laws and regulations in Germany are routinely published in draft, and public comments are solicited. According to the Joint Procedural Rules, ministries should consult the concerned industries’ associations (rather than single companies), consumer organizations, environmental and other NGOs. Consultation takes between two to eight weeks.

The German Institute for Standardization (DIN) is open for foreign members.

9. Efficient Capital Markets and Portfolio Investment

As an EU member state with a well-developed financial sector, Germany welcomes foreign portfolio investment and has an effective regulatory system. Germany has a very open economy, routinely placing among the top countries in the world for exports and inward and outward foreign direct investment. As a member of the Eurozone, Germany does not have sole national authority over international payments, which are a shared task of the Eurosystem (and the European Central Bank) and the German central bank (Bundesbank). There are no restrictions on capital movements into or out of Germany, based on European law. However, as the case of Cyprus showed, the national parliament can, with the permission of the EU and the ECB, impose temporary restrictions in exceptional cases. Global investors see Germany as a safe place to invest as the real economy continues to outperform other EU countries and German sovereign bonds retain their “safe haven” status.

Listed companies and market participants in Germany must comply with the Securities Trading Act, which bans insider trading and market manipulation. Compliance is monitored by the Federal Financial Supervisory Authority (BaFin) while oversight of stock exchanges is the responsibility of the state governments in Germany (with BaFin taking on any international responsibility). Investment fund management in Germany is regulated by the Capital Investment Code (KAGB), which entered into force on July 22, 2013. The KAGB represents the implementation of additional financial market regulatory reforms, committed to in the aftermath of the global financial crisis. The law went beyond the minimum requirements of the relevant EU directives and represents a comprehensive overhaul of all existing investment-related regulations in Germany with the aim of creating a system of rules to protect investors while also maintaining systemic financial stability.

Money and Banking System, Hostile Takeovers

Although corporate financing via capital markets is on the rise, Germany’s financial system remains mostly bank-based, with bank loans the predominant form of funding for firms, particularly the small and medium sized enterprises of Germany’s famed Mittelstand. 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 regulated by federal authorities and there are no reports of a shortage of credit in the German economy. Since 2010, Germany has banned some forms of speculative trading, most importantly “naked short selling.” In 2013, Germany passed a law requiring banks to separate riskier activities such as proprietary trading into a legally separate, fully capitalized unit that has no guarantee or access to financing from the deposit-taking part of the bank. Germany supports a worldwide financial transaction tax and is pursuing the introduction of such a tax along with several other Eurozone countries.

Germany has a modern banking sector, but is often considered “over-banked,” as evidenced by ongoing consolidation and low profit margins. The country’s so-called “three-pillar" banking system is made up of private commercial banks, cooperative banks, and the public banks (savings banks, or Sparkassen, and the regional state-owned banks, or Landesbanken). The private bank sector is dominated by Deutsche Bank and Commerzbank, accounting for 24% and 7.6% of all bank assets respectively (2012 figures). In efforts to raise capital ratios in advance of new international guidelines (the Basel III agreement), both banks continue to shrink the size of their balance sheets. Commerzbank received €18 billion in financial assistance from the federal government in 2009, which gave the government a 25% stake in the bank (now reduced to 17%). Germany’s regional state-owned banks were among the hardest hit by the crisis and continue to face major challenges to their business models. The federal government is currently in the process of winding down several so-called “bad banks” composed of toxic assets of failed banks WestLB and Hypo Real Estate.

Foreigners can create bank accounts in Germany with the proper identification, although most banks also require proof of a German address and/or registration with the local Residents’ Registration Office (also required of locals). American citizens living in Germany have complained that certain German banks have closed their investment accounts due to additional administrative burdens and legal complications caused by the U.S. legislation known as the Foreign Accounts Tax Compliance Act (FATCA), which requires German banks to report information on accounts of American citizens to the IRS. Reports of such closures have decreased since the United States and Germany signed a bilateral agreement in 2013 to reduce some of the legal issues related to FATCA, mainly by allowing German banks to report the required information to the German government, which will then share it with the appropriate U.S. government agencies.

Takeovers of publicly listed companies in Germany are regulated by the German Securities Acquisition and Takeover Act, introduced in 2002 and updated several times. Uncommon before 2000, takeovers have increased since then with 344 attempts on German targets occurring between 2002 and the beginning of 2012. Compliance with the Takeover Act is supervised by BaFin, and the main principles include the equal treatment of shareholders, the provision of sufficient information and time for shareholders to reach informed decisions, and the avoidance of market disruptions. The German government has not actively intervened to protect German companies from foreign takeovers, instead professing support for the free functioning of a market economy. The government’s policy continues to be influenced by its experience in 2009, when it was roundly criticized for its unsuccessful efforts to exert pressure on General Motors to sell its German-based Opel subsidiary to a consortium led by Canadian-Austrian car parts supplier Magna and Russian bank Sberbank, mainly in order to avoid German job losses.

10. Competition from State-Owned Enterprises

The formal term for state-owned enterprises (SOEs) in Germany translates as “public funds, institutions, or companies,” and refers to entities whose budget and administration are separate from those of the government but in which the government has more than 50% of the capital shares or voting rights. Appropriations for SOEs are included in public budgets and SOEs can take two forms, namely, so-called public and private law entities. Public law entities are recognized as legal personalities whose goal, tasks and organization are established and defined via specific acts of legislation, with the best-known example being the publicly-owned promotional bank KfW (Kreditanstalt für Wiederaufbau). The government can also resort to ownership or participation in an entity governed by private law if the following conditions are met: doing so fulfills an important state interest, there is no better or more economical alternative, the financial responsibility of the federal government is limited, the government has appropriate supervisory influence, yearly reports are published, and such control is approved by the federal Finance Ministry and the ministry responsible for the subject matter.

Government oversight of existing SOEs is decentralized and handled by the ministry with the appropriate technical area of expertise. The primary goal of such involvement is the furtherance of the public interest rather than the generation of profits. The government is required to end its ownership stake in a private entity if government tasks change or technological progress provides more effective alternatives, though the government notes that certain areas, particularly science and culture, remain permanent core government obligations. German SOEs are subject to the same taxes and the same value added tax rebate policies as their private sector competitors. There are no laws or rules that seek to ensure a primary or leading role for SOEs in certain sectors/industries. Private enterprises have the same access to financing as SOEs, including access to state-owned banks such as KfW. Under the law, SOEs are subject to hard budget constraints which are generally enforced.

The Federal Statistics Office maintains a database of SOEs from all three levels of government (federal, state, and municipal) listing a total of 15,127 entities for 2011, or 0.4% of the total 3.6 million companies in Germany. SOEs in 2011 had €501 billion in revenue and €493 billion in expenditures. 41% of SOE revenue was generated by water and energy suppliers, 11.9% by ground transportation-related entities, and 11.8% by health and social services. Measured by number of companies rather than size, 90% of SOEs are owned by municipalities, concentrated in water and electricity services, 8% are owned by Germany’s 16 states, mostly related to public administration, and 2% by the federal government.

The Federal Finance Ministry is required to publish a detailed annual report on public funds, institutions, and companies in which the federal government has a direct participation (including a minority share), or an indirect participation greater than 25% and with a nominal capital share worth more than €50,000. The federal government had a partial or total stake in 111 companies at the end of 2012, most prominently Deutsche Post (21% of shares are owned by public development bank KfW), Deutsche Telekom (31.9%) and Deutsche Bahn (100%). Federal government ownership is concentrated in the science, culture, transportation and logistics sectors. As the result of federal financial assistance packages from the federally-controlled Financial Market Stability Fund during the global financial crisis of 2008-9, the federal government still has a partial stake in several private banks, including a 17% share in Commerzbank, Germany’s second largest private bank.

Publicly-owned banks also constitute one of the three pillars of Germany’s banking system (cooperative and commercial banks are the other two). Germany’s savings banks are mainly owned by the municipalities while the so-called Landesbanken are typically owned by regional savings bank associations and the state governments. State guarantees for the publicly owned banks were abolished in 2005 due to pressure from the EU Commission, though outstanding debt at that time was grandfathered until the end of 2015. There are also many state-owned promotional/development banks which have taken on larger governmental roles in financing infrastructure. This increased role removes expenditures from public budgets, particularly helpful in light of Germany’s balanced budget rules, which go into effect for the states in 2019.

The government codified the corporate governance considerations for SOEs in 2009 into the Public Corporate Governance Codex. The codex obligates the federal government to consider environmental sustainability and social responsibility, avoid conflict of interests, support transparency through mandatory public reports, improve oversight and quality of leadership, and increase efficiency. SOEs are required to make a formal annual declaration of their compliance with the codex. According to the OECD, the codex strengthened the reporting requirements of previous arrangements, and, in this sense, Germany has “moved toward a central coordination of SOE-related practices and, arguably, taken a step from a sectoral toward a dual ownership model for SOEs.”

One of the most famous cases of a German partially state-owned enterprise that provides special privileges to the government is automotive manufacturer Volkswagen, in which the German state of Lower Saxony controls a 12.7% stake (the fourth largest), but 20% of the voting rights. The so-called Volkswagen Law passed in 1960 limited individual shareholder’s voting rights in Volkswagen to a maximum of 20% despite the actual number of shares owned, in order to ensure that Lower Saxony could veto any foreign takeover attempts. In 2005, the European Commission successfully sued Germany at the European Court of Justice (ECJ), claiming the law impeded the free flow of capital. The law was amended to remove the cap on voting rights, but Lower Saxony’s 20% share of voting rights was maintained, preserving its ability to block hostile takeovers of the company. In 2013, the ECJ said the amended law complies in full with the earlier ruling.

Deutsche Bahn, the 100%-federally controlled railroad company, has also been accused of taking advantage of its dominant market position. In 2012, the European Commission (EC) formally opened an investigation into whether Deutsche Bahn operated an anticompetitive pricing system for electricity used on the railway’s network, including whether discounts applied by Deutsche Bahn to its subsidiaries led to higher prices for its competitors in the rail freight and passenger markets. The EC closed the investigation after Deutsche Bahn offered a new pricing system without rebates or discounts and paid a one-time retroactive refund of 4% for 2013. The German Competition Office has also announced its intention to investigate whether Deutsche Bahn has taken advantage of its market position by preventing competitors from selling tickets at Deutsche Bahn’s stations.

In November 2013, the EC initiated legal proceedings against Deutsche Post at the European Court of Justice over a long-running case in which Deutsche Post was ordered to repay public pension subsidies. The original complaint was raised by U.S. parcel delivery firm UPS. Deutsche Post allegedly used public money to cover losses resulting from below-cost pricing in its parcel delivery services, thereby undercutting rivals. The subsidies were intended to go towards Deutsche Post’s public service functions including letter delivery in Germany. At the time, the EC competition commissioner told reporters, “Beneficiaries of state support for public interest services must not use this support to finance sectors open to competition.” The subsidies under question were provided since 2003 to cover the pension liabilities of civil servants taken on by Deutsche Post from the previous government-owned postal administration during the company’s partial privatization in the mid-1990s. The EC said Deutsche Post was “overcompensated” for these legacy pension costs since it was getting both a subsidy from the government as well as an increase in regulated letter prices, which was specifically intended to cover pension costs.

OECD Guidelines on Corporate Governance of SOEs

The government codified the corporate governance considerations for SOEs in 2009 in the Public Corporate Governance Codex. The codex obligates the federal government to consider environmental sustainability and social responsibility, avoid conflict of interests, support transparency through mandatory public reports, improve oversight and quality of leadership, and increase efficiency. SOEs are required to make a formal annual declaration of their compliance with the codex. According to the OECD, the codex strengthened the reporting requirements of previous arrangements, and, in this sense, Germany has “moved toward a central coordination of SOE-related practices and, arguably, taken a step from a sectoral toward a dual ownership model for SOEs.

Sovereign Wealth Funds

The German government does not currently have a sovereign wealth fund or an asset management bureau. Following German reunification, the federal government had set up a public agency to manage the privatization of assets held by the former East Germany. In 2000, the agency, known as TLG Immobilien, underwent a strategic reorientation from a privatization-focused agency to a profit-focused active portfolio manager of commercial and residential property. In 2012, the federal government sold TLG Immobilien to private investors.

11. Corporate Social Responsibility

The Federal Ministry of Labor and Social Affairs is the leading ministry for corporate social responsibility (CSR) within FRG. In 2010, at the suggestion of the Ministry of Labor and Social Affairs, the Federal Cabinet approved an Action Plan for CSR aimed at anchoring CSR more firmly in enterprises and public bodies as well as small and medium-sized enterprises.

The Action Plan is based on recommendations of the National CSR Forum, which consists of 44 experts from business, unions, non-governmental organizations and academia. The multi-stakeholder forum has advised the Labor Ministry since early 2009 on the development of a national strategy. The National Action Plan for CSR takes into account the OECD Guidelines for Multinational Enterprises, the UN Global Compact, UN Guiding Principles for Business and Human Rights, the EU strategy for CSR and ILO Tripartite Declarations.

There is general awareness of environmental, social and governance issues among both producers and consumers, even if they are not always familiar with the term CSR. In order to encourage businesses to factor environmental, social and governance issues into their decision-making the government provides information online and in paper for example showcasing best practices. The government awards several CSR related prizes, puts up stands at business fairs on CSR, organizes conferences on CSR, produces regular reports and newsletters and has created a website on CSR in Germany (http://www.csr-in-deutschland.de/en/home.html in English). The Government of Germany maintains and enforces domestic laws with respect to labor and employment rights, consumer protections and environmental protections. The Government of Germany does not waive labor and environmental laws to attract investment. (See the section on labor for more details).

Social reporting is voluntary, but public companies use the possibility for cultivating a positive image by including information on their CSR-activities in their annual report and on their websites.

Among other the following civil society groups work on different issues of CSR: 3p Consortium for Sustainable Management, amnesty international Germany, Bund für Umwelt und Naturschutz Deutschland e. V. (BUND), CorA Corporate Accountability - Netzwerk Unternehmensverantwortung, Forest Stewardship Council (FSC), Germanwatch, Greenpeace Germany, Naturschutzbund Deutschland (NABU), Sneep (Studentisches Netzwerk zu Wirtschafts- und Unternehmensethik), Stiftung Warentest, Südwind - Institut für Ökonomie und Ökumene, TransFair - Verein zur Förderung des Fairen Handels mit der "Dritten Welt" e. V., Transparency International, Verbraucherzentrale Bundesverband e.V., Bundesverband Die Verbraucher Initiative e.V., World Wide Fund for Nature (WWF).

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 selected member companies’ approaches to CSR. Its CSR Committee serves as a platform to exchange best practices, identify trends and discuss regulatory initiatives. In addition, Germany’s four leading business organizations have concentrated information on a common CSR internet portal www.csrgermany.de .

OECD Guidelines for Multinational Enterprises

The Ministry of Economics and Energy established a contact point for OECD Guidelines for Multinational Enterprises with dedicated staff in the Division responsible for Foreign Direct Investment policy. Basic information is available on the ministry’s website which is regularly updated. Flyers in several languages including English can be obtained as electronic version or from German embassies. In addition, the Government promotes the OECD guidelines to foreign investors on the main website for foreign trade and investment iXPOS and the investment promotion agency abets investors to adhere to the guidelines. Companies applying for investment guarantees are explicitly encouraged to respect the OECD guidelines. The contact point gives talks about the guidelines at the invitation of business associations and is working on a handbook targeting especially SMEs.

12. 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.

13. Corruption

Germany is a country with an overall good to very good system for preventing corruption. Among industrialized countries, Germany ranks in the middle, according to Transparency International's corruption indices. The auto industry, the construction sector and public contracting, in conjunction with questionable political party influence and party donations, represent areas of continued concern. Nevertheless, U.S. firms have not identified corruption as an impediment to investment in Germany. Germany is a signatory of the OECD Anti-Bribery Convention and a participating member of the OECD Working Group on Bribery.

Over the last two decades Germany has increased penalties for the 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 on financial support extended by the official export credit agency and has tightened the rules for public tenders. Government officials are forbidden from accepting gifts linked to their jobs. Most state governments and local authorities have contact points for whistle-blowing and provisions for rotating personnel in areas prone to corruption. There are serious penalties for bribing officials and price fixing by companies competing for public contracts.

Parliamentarians are subject to financial disclosure laws that require them to publish earnings from outside employment. Members of parliament must disclose categories of outside employment and earnings greater than 1,000 euros ($1,400) in a month or 10,000 euros ($14,000) in a year. No special institution has responsibility for monitoring and verifying disclosures. Additional revenues of parliamentarians through business connections have been a matter of public debate. Disclosures are available to the public via the Bundestag website (next to the parliamentarians’ biographies) and in the Official Handbook of the Bundestag. Sanctions for noncompliance can range from an administrative fine to as much as half of a parliamentarian’s annual salary.

In February 2014, the German parliament amended the criminal law clarifying corruption offenses by parliamentarians and increasing penalties. In May 2013 it was revealed that several members of the Bavarian parliament had employed family members on the basis of their parliamentarian allowance. The Bavarian parliament promptly adopted a law prohibiting the employment of family members to the fourth level of kinship. The Highest Bavarian Court published a report that reimbursements paid after July 2004 to family members of first degree of kinship must be paid back.

Donations to political parties are permitted. However, if they exceed 50,000 euros, they must be reported to the President of the Bundestag. Donations of 10,000 euros or more must be included in the party’s annual accountability report to the President of the Bundestag. Transparency International would like political parties to commit more strongly to the fight against corruption and to make their financing and recruitment of political personal more transparent.

State prosecutors generally are responsible for investigating corruption cases, but not all state governments have prosecutors specialized in corruption. Germany has successfully prosecuted hundreds of domestic corruption cases over the years including large scale ones against major companies. An OECD monitoring report released in 2010 noted that the country’s enforcement efforts have increased steadily and resulted in a significant number of prosecutions and sanctions imposed in foreign bribery-related cases against individuals. However, the report highlighted that sentences for corruption were generally within the lower range of available penalties and that most prison sentences were suspended, raising concerns that punishment was not always fully effective, proportionate, or dissuasive. Transparency International criticized the number of plea bargains and the statutory limitation periods.

Media reports about bribery investigations against Siemens, Daimler, Deutsche Telekom or Ferrostaal increased awareness of the problem of corruption. As a result, an increasing number of major listed companies and multinationals expanded their compliance departments, tightened internal codes of conduct, established points of conducts where to report and offered more ethics training to employees in the last five years. A recent survey by the Center for Business Compliance and Integrity at the Konstanz University of Applied Sciences among 60 companies with 500-plus employees found that 83% had compliance codices and 50% internal controls in place. Similar studies found prevalence of compliance codices in 63% to 84% of sampled companies. Increasingly medium-sized companies have beefed up their compliance programs starting with cartels and corruption but using guidelines and international conventions to go further. Medium-sized companies with business relations with the United States or top legal or tax advisors tend to be more advanced.

The Federation of Germany Industry (BDI), the German Chamber of Commerce (DIHK) and the International Chamber of Commerce (CCI) provide guidelines in paper and electronic format on how to prevent corruption trying to convince all including small and medium sized companies to catch up. In addition, BDI provides model texts if companies with two different sets compliance codes want to do business.

Resources to report corruption:

Contact at government agency

There is no central government anti-corruption agency in Germany.

Contact at “watchdog” organization

  • NAME: Prof. Dr. Edda Müller
  • TITLE: Chair
  • ORGANIZATION: Transparency International Germany
  • ADDRESS: Alte Schönhauser Str. 44, 10119 Berlin
  • TELEPHONE NUMBER: +49 30 549 898 0
  • EMAIL ADDRESS: office@transparency.de

UN Anticorruption Convention, OECD Convention on Combatting Bribery

Germany signed the UN Anti-Corruption Convention in 2003, but has not yet ratified it. In February 2014, the German parliament amended the criminal law clarifying corruption offenses by parliamentarians and increasing penalties. This law removes the main obstacle to the ratification of the UN Anti-Corruption Convention.

Germany ratified the 1998 OECD Anti-Bribery Convention in 1999, thereby criminalizing bribery of foreign public officials by German citizens and firms. The necessary tax reform legislation ending the tax write-off for bribes in Germany and abroad became law in 1999. Germany actively enforces the convention and is increasingly dealing better with the risk of transnational corruption.

The country participates in the relevant EU anti-corruption measures and signed two EU conventions against corruption. However, Germany has not ratified the Council of Europe Criminal Law Convention on Corruption and the Civil Law Convention on Corruption.

14. Bilateral Investment Agreements

Germany does not have a bilateral investment treaty with the United States, however, a Friendship, Commerce and Navigation (FCN) treaty dating from 1956 remains in force. Currently, USTR and the European Commission’s Directorate-General for Trade are negotiating a Transatlantic Trade and Investment Partnership including an investment chapter.

Germany has investment treaties in force with 131 countries and territories. Treaties with former sovereign entities (including Czechoslovakia, the Soviet Union, and Yugoslavia) continue to apply in an additional four cases. These are indicated with an asterisk (*) and have not been taken into account in regard to the total number of treaties. Treaties are in force with the following states, territories or former entities:

Afghanistan; Albania; Algeria; Angola; Antigua and Barbuda; Argentina; Armenia; Azerbaijan; Bahrain; 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 (Republic); Congo (Democratic Republic); Costa Rica; Croatia; Cuba; Czechoslovakia; 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; Libya; Lithuania; Macedonia; Madagascar; Malaysia; Mali; Malta; Mauritania; Mauritius; Mexico; Moldova; Mongolia; Morocco; Mozambique; Namibia; Nepal; Nicaragua; Niger; Nigeria; Oman; Pakistan; Palestinian Territories; Panama; Papua New Guinea; Paraguay; Peru; Philippines; Poland; Portugal; Qatar; Romania; Russia*; Rwanda; Saudi Arabia; Senegal; Serbia*; Sierra Leone; Singapore; Slovak Republic*; Slovenia; Somalia; South Africa; Soviet Union; Sri Lanka; St. Lucia; St. Vincent and the Grenadines; Sudan; Swaziland; Syria; Tajikistan; Tanzania; Thailand; Togo; Trinidad & Tobago; Tunisia; Turkey; Turkmenistan; Uganda; Ukraine; United Arab Emirates; Uruguay; Uzbekistan; Venezuela; Vietnam; Yemen; Yugoslavia; Zambia; and Zimbabwe.

The bilateral investment treaty with Bolivia will come out of force in May 2014 and the bilateral investment treaty with South Africa will come out of force in October 2014.

Germany has ratified treaties with the following countries and territories that have not yet entered into force:

Country

Signed

Temporarily Applicable

Brazil

09/21/1995

No

Congo (Republic)

11/22/2010

*

Guinea

11/08/2006

*

Iraq

12/04/2010

No

Israel

06/24/1976

Yes

Madagascar

08/01/2006

*

Pakistan

12/01/2009

*

Timor-Leste

08/10/2005

No

Panama*

01/25/2011

No

(*) Previous treaties apply

Bilateral Taxation Treaties

Taxation of U.S. firms within Germany is governed by the "Convention for the Avoidance of Double Taxation with Respect to Taxes on Income." It has been in effect since 1989 and was extended in 1991, to the territory of 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. A Protocol of 2006 updates the existing tax 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. In 2013, Germany and the United States signed an agreement on legal and administrative cooperation and information exchange.

Germany has bilateral treaties with respect to taxes on income with a total of 97 countries. Germany has initialed new income tax treaties with Costa Rica, Oman and Turkmenistan which are not yet in force. Income tax treaties are under negotiation with Jordan, Qatar, Columbia, and Libya.

15. OPIC and Other Investment Insurance Programs

OPIC programs were available for the new states of eastern Germany for several years during the early 1990s following reunification, but were later suspended because of progress in the economic and political transition.

16. Labor

The labor market remained resilient during the economic and financial crisis and continued to be strong in 2013. The rebound in Germany’s labor market and economy owes much to the comprehensive set of labor and social reforms, termed “Agenda 2010,” that former Chancellor Gerhard Schröder and his Social Democrat/Greens coalition government introduced between 2003 and 2005. The reforms contributed to overcoming the structural weaknesses of the German welfare state and labor market, resulting in today’s strong employment growth and low unemployment.

As a result of the past reforms, employment in Germany has continued to rise for the eight consecutive years and reached an all-time high of 41.84 million in 2013, an increase of 233,000 from 2012. In particular, women and the elderly have benefitted from the positive trends in the labor market. Unemployment has fallen by almost two million since 2005. At the end of 2013, 2.95 million people were unemployed, and the jobless rate was at 6.9%, according to official data from the German Federal Statistical Office (using the internationally comparable concept of the International Labor Organization (ILO) the German unemployment rate stands at 5.5%). There was a minor surge in unemployment in 2013, with an increase of 0.1% or 53,000, in comparison to 2012, the year with the lowest unemployment rate since German reunification (1990). Germany also had the lowest youth unemployment rate of 7.5% in 2013, in contrast to the European Union average of 23.6%. Although the unemployment rate gap between eastern Germany’s and western Germany’s federal states has considerably narrowed in recent years, the unemployment rate in the eastern states (11%) still significantly exceeds that of the western states (6.4%). In 2013, the number of individuals affected by underemployment also further decreased by 25,000 to 3.9 million (9%) compared to the previous year.

Many experts credit the government-funded short-time work program for limiting job losses during the global financial and economic crisis. Other factors, such as moderate wage increases in recent years, flexibility in bargaining agreements, numerous company-level alliances to retain jobs, the option of offering more flexible forms of employment and employers’ willingness to accept higher unit labor costs, have also contributed to the stability of the German labor market.

The German labor force is generally highly skilled, well-educated, disciplined, and productive. The German vocational training system has gained international interest in recent years, as it is seen as a reason for Germany’s highly skilled workforce and its low youth unemployment rate. Germany’s so-called “dual vocational training,” a combination of theoretical courses taught at schools and practical application in the workplace, teaches and develops many of the skills employers need. There are almost 500,000 apprenticeship positions in more than 340 recognized training professions in all sectors of the economy and public administration available each year. Around 60% of every age group chooses an apprenticeship. The government is promoting apprenticeship opportunities, in partnership with industry, through the “National Pact to Promote Training and Young Skilled Workers.”

An element of growing concern for German business is a shrinking labor force, especially with respect to skilled labor, due to an aging population. Official forecasts predict that in 2030, the working age population, currently around 50 million, will drop to 43 million resulting in an overall shortage of labor. Labor bottlenecks are already a reality in certain industries, occupations, and regions. According to the Federal Employment Agency, doctors, medical and geriatric nurses and mechanical, automotive and electrical engineers as well as IT professionals are in short supply. The government has begun to enhance its efforts to ensure an adequate labor supply by improving programs to integrate women, elderly, young people as well as foreign nationals into the labor market. The government has also facilitated the immigration of qualified workers.

The Euro crisis has led to a redirection of the migration flows, especially those from Eastern and Southern European countries to Germany. The net migration rate of foreigners (total number of immigrants minus the number of emigrants) rose from a 2008 low of 10,700 to almost 400,000 in 2012, the highest level since 1993. This high influx is partly due to the positive labor market situation in Germany and the comparatively high unemployment in other European countries such as Spain, Italy and Portugal.

Labor Relations

The cooperation and partnership of labor unions and employer associations is considered a fundamental principal of the German social market economy and has contributed to the country’s resilience during the economic and financial crisis and Germany’s economic strength. For example, the government, employers and employees implemented together the so-called short term working scheme, which allowed troubled companies to retain their workers on shorter work schedule and reduced pay during economically difficult times and thus save jobs. Labor unions are independent of the government and political parties but are important political players themselves.

German labor unions are generally constructive in their cooperation with employers. Securing jobs is one of the German labor’s core objectives. Consequently, labor unions have frequently shown restraint in their wage demands in weak economic times. Recently, especially during 2012, Germany experienced a considerable rise in the number of strike days, as labor unions became more insistent that employees should also benefit from Germany’s strong economic recovery. Nevertheless, employee strikes in Germany are relatively rare and short in comparison to other industrialized countries. According to the Institute of Economic and Social Research (WSI), there were strikes on 16 days for each 1000 employees in Germany on a yearly average between 2005 and 2012, whereas France experienced 150 days, Canada 117 and the United States 10. Unions’ right to strike and employers’ right to lock out are protected in the German constitution. All workers have the right to strike, except for civil servants (including teachers) and staff in sensitive or essential positions, such as members of the armed forces.

The constitution, federal legislation, and government regulations contain provisions designed to protect the right of employees to form and join independent unions of their choice. The overwhelming majority of unionized workers is a member of one of the eight largest unions - largely grouped by industry or service sector - which are affiliates of the German Trade Union Federation (Deutscher Gewerkschaftsbund, DGB). Several smaller unions exist outside the DGB. Trade union membership has, however, continued to decline, a trend that accelerated in the 1990s partly because of a sharp fall in manufacturing employment in Eastern Germany after reunification. In 2011, less than 18% of the workforce was organized into unions. Since peaking at around 12 million members shortly after German reunification, total DGB union membership has steadily declined to 6.14 million in 2013.

The constitution and enabling legislation protect the right to collective bargaining, and agreements are governed by law. The coverage of collective agreements has been declining for decades. Collective bargaining agreements in 2012 covered approximately 58% of all employees, 60% of the labor force in the western part of the country and approximately 48 % in the East. Many industry-wide collective bargaining agreements 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. The collective bargaining agreements are valid for 23 months on average.

Collective bargaining agreements concluded in 2013 provided nominal pay increases on the same high level as in 2012. On average, negotiated wages increased by 2.7% in 2013, ranging from 2.3% in the retail industry, up to 3.5% for workers in the energy and water supply industry. With an inflation rate of 1.5% in 2013, collective bargaining resulted in an overall real wage gain of 1.2%. Labor unions have achieved wage rises that were above the inflation rate since 2009.

As of September 2013, binding sector-wide minimum wages were in place in thirteen sectors, five of which relating to construction occupations, covering approximately 8% of the workforce. Those minimum wage rates are set by collective bargaining agreements. Minimum wages ranged from €7.50 per hour in the security services to €13.70 per hour for skilled construction work. The country does not currently have a nation-wide legal minimum wage, although the current Federal Government, a coalition of the Christian Democratic Union (CDU) and the Social Democratic Party (SPD), has agreed to introduce a statutory, country-wide minimum wage of €8.50 per hour as of January 2015.

At the company level, 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 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. In addition, “co-determination” laws give the workforce in medium-sized or large companies (corporations, limited liability companies, partnerships limited by shares, co-operatives, and mutual insurance companies) significant voting representation on the firms’ supervisory boards. This co-determination in the supervisory board extends to all company activities.

17. Foreign Trade Zones/Free Ports

There are four free-trade zones in Germany established and operated under EU law: Bremerhaven, Cuxhaven, Deggendorf and Duisburg. These duty-free zones within ports also permit value-added processing and manufacturing for EU-external markets, albeit with certain requirements. All of them are open to both domestic and foreign entities. In recent years, falling tariffs and the progressive enlargement of the EU have gradually eroded much of the utility and attractiveness of duty-free zones. Kiel and Emden lost free-trade zone status in 2010. Hamburg lost free-trade zone status in 2013.

18. Foreign Direct Investment and Foreign Portfolio Investment Statistics

TABLE 2: Key Macroeconomic data, U.S. FDI in Germany, latest year as indicated

 

Host Country Statistical source*

USG or international statistical source

USG or international

Source of data

(Source of Data: BEA; IMF; Eurostat; UNCTAD, Other)

Economic Data

Year

Amount

Year

Amount

 

Host Country Gross Domestic Product (GDP) (Millions U.S. Dollars)

2012

3,485,518

2012

3,428,000

DeStatis, Federal Statistical Office

Worldbank

Foreign Direct Investment

Host Country Statistical source*

USG or international statistical source

USG or international

Source of data: BEA; IMF; Eurostat; UNCTAD, Other

U.S. FDI in partner country (Millions U.S. Dollars, stock positions)

2011

96,514

2012

2012

121,184

99,075

Deutsche Bundesbank

BEA

UNCTAD World Investment Report 2013

Host country’s FDI in the United States (Millions U.S. Dollars, stock positions)

2011

232,916

2012

2012

199,006

229,123

Deutsche Bundesbank

BEA

UNCTAD World Investment Report 2013

Total inbound stock of FDI as % host GDP (calculate)

2011

27.8%

2012

2012

29.3%

21.1%

Deutsche Bundesbank

OECD FDI in Figures Feb 2014

UNCTAD World Investment Report 2013

* Provide sources of host country statistical data used.

Exchange rate: 1 euro = 1.3072 US dollars (exchange rate of 30 April 2014, date of the publication of FDI statistics by Deutsche Bundesbank)

TABLE 3: Sources and Destination of FDI from in Germany 2012

Direct Investment from/in Germany 2012

From Top Five Sources/To Top Five Destinations (US Dollars, Millions)

Inward Direct Investment

Outward Direct Investment

Total Inward

1,004,108

100%

Total Outward

1,539,917

100%

Netherlands

244,995

24%

United States

229,123

15%

Luxembourg

153,187

15%

United Kingdom

185,825

12%

United States

99,075

10%

Netherlands

162,333

11%

France

96,234

10%

Luxembourg

125,319

8%

Switzerland

83,192

8%

France

99,562

6%

"0" reflects amounts rounded to +/- USD 500,000.

Source: http://cdis.imf.org

TABLE 4: Sources of Portfolio Investment, Germany 2012

Portfolio Investment Assets

Top Five Partners (Millions, US Dollars)

Total

Equity Securities

Total Debt Securities

World

2,760,141

100%

World

747,415

100%

World

2,012,726

100%

Luxembourg

455,628

17%

Luxembourg

376,974

50%

France

317,037

16%

France

375,394

14%

United States

73,451

10%

Netherlands

246,621

12%

Netherlands

266,528

10%

France

58,357

8%

Italy

202,061

10%

United Kingdom

222,051

8%

United Kingdom

41,858

6%

United Kingdom

180,193

9%

United States

219,577

8%

Ireland

37,862

5%

United States

146,126

7%

Source: http://cpis.imf.org

Some of the investments pass through neighboring EU member states Luxembourg and the Netherlands to the final destination of Germany.

19. Contact Point at Post for Public Inquiries

  • NAME (optional)
  • TITLE: Minister-Counselor for Trade
  • ADDRESS OF MISSION/AIT: Pariser Platz 2, 14191 Berlin, Germany
  • TELEPHONE NUMBER: +49-(0)30-8305-1900
  • EMAIL ADDRESS: office.berlin@trade.gov