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U.S. DEPARTMENT OF STATE
GERMANY: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICES
BUREAU OF ECONOMIC AND BUSINESS AFFAIRS





                             GERMANY

                     Key Economic Indicators
        (Billions of U.S. dollars unless otherwise noted)


                                    1992*     1993*     1994* /1

Income, Production and Employment:

Real GDP (1991 prices)            1,870.1   1,743.0   1,824.5
Real GDP Growth Rate                  2.2      -1.1       2.5
GDP by Sector:  (1991 prices)
  Agriculture/Forestry/Fishing       25.6      21.7       N/A
  Manufacturing/Mining/
    Construction                    717.9     656.6       N/A
  Trade/Transportation              281.9     268.6       N/A
  Services                          614.9     634.0       N/A
  General Government/Households     271.9     267.7       N/A
  Net Exports of Goods & Services   -16.5     -14.7      -7.3
Real GDP Per Capita (USD)          23,203    21,471    22,316
Civilian Labor Force (millions)      38.9      38.7      38.5
Unemployment Rate /2
  (annual average)                    7.7       8.8       9.8

Money and Prices:  (annual percentage growth)

Money Supply (M3) /3,4                9.6       7.5       7.9
Commercial Interest Rate /3         12.03     10.16      9.43
Personal Savings Rate /5,6           13.9      13.3      12.5
Retail Inflation /6                   2.5       2.1       1.2
Wholesale Inflation /6                0.1      -1.1       1.5
Consumer Price Inflation /6           4.0       4.2       3.0
Exchange Rate (annual average)
  (deutschmarks/USD)               1.5595    1.6544      1.62

Balance of Payments and Trade:

Total Exports (FOB)                 430.4     379.9     413.6
  Total Exports to U.S. 7/           28.8      28.6      30.6
Total Imports (CIF)                 408.8     343.1     364.2
  Total Imports from U.S. 7/         21.2      18.9      18.5
Gold and Foreign Exch. Reserves /3    3.8      45.6      50.0
Trade Balance                        21.6      36.9      49.4
  Trade Balance with U.S. 7/          7.6       9.6      12.1


N/A--Not available.

* All Germany.
1/ Estimates based on latest available data.
2/ Percent of civilian labor force.
3/ 1994: latest available data.
4/ Change 4th qtr./4th qtr.; for 1994, seasonally adjusted
annual rate, through September 1994 over 4th qtr. 1993.
5/ Bundesbank definition.
6/ Western Germany only; all German GDP data are incomplete.
7/  Official U.S. figures.  1994 based on first three quarters.







1.  General Policy Framework

    The German economy is the world's third largest and
attained a GDP equivalent to USD 1.9 trillion (in nominal
terms) in 1993.  That same year was marked by a recession in
which the German economy contracted by 1.1 percent.  In late
1994, the economy is back on a growth path, and the consensus
forecast is for 2.5 percent real growth this year and next. 
The German "social market" economy is organized on free market
principles and affords its citizenry a greater degree of
unemployment, health and educational benefits than most other
industrialized countries.  One of the world's foremost trading
nations, Germany since reunification in 1990 has experienced a
substantial decline in its foreign trade surplus due to the
demands of integrating the economy of the erstwhile GDR.  The
German parliament has ratified the Uruguay Round agreement.

    German fiscal policy also has been driven by the financial
exigencies of reunification.  The government extended the
country's generous social welfare system to eastern Germany and
committed itself to quickly raise eastern German production
potential via public investment and generous subsidies to
attract private investment.  The budgetary cost of these
policies was increased by the decision to rapidly raise eastern
German wages to western German levels.  This resulted in heavy
job losses and greatly increased the government's unemployment
compensation costs, as well as wage costs in government-owned
firms being prepared for privatization.  As a result, western
Germany has had to transfer vast sums to eastern Germany on the
magnitude of DM 150 billion annually, or 5.0 percent of
all-German gdp.  These transfers accounted for the dramatic
ballooning of public sector deficits and borrowing.  The
recession of 1992/93 further contributed to a widening fiscal
deficit as tax revenues weakened and anticyclical expenditures
rose.

    Despite the recession and the fiscal demands of
reunification, the German government has sought to narrow the
federal budget deficit through a variety of tax and fee
increases, public spending restraint and cuts in certain social
benefits.  Nonetheless, the overall public sector borrowing
requirement (broadly measured to include all levels of
government as well as hitherto "off-budget" funds and agencies)
will be some DM 180 billion in 1994 and is expected to be only
slightly smaller in 1995.

    In recent years, relatively high rates of inflation (the
CPI rose an average 4.1 percent in 1992 and 1993) and money
growth, as well as concern over wage developments and fiscal
deficits, have preoccupied the German central bank
(Bundesbank).  The Bundesbank places overriding importance on
price stability and thus responded to the rising inflation in
1991/92 by hiking short term interest rates, which peaked in
July 1992 at post-war highs.  Since then, the central bank
discount rate has declined by 4.25 percentage points, with the
most recent cut occurring in May 1994.  In 1993-94, wage
settlements were moderate and inflation has declined to about
three percent.  However, the Bundesbank has continued to be
concerned about rapid monetary growth.

    The government's public sector deficits are financed
primarily through sales of government bonds, the maximum
maturity of which normally is ten years (for the first time in
over a decade, the government issued a 30-year bond in January
1994).  The Bundesbank's primary monetary policy tool is
short-term liquidity provided to the banking system primarily
via repurchase operations.  It also provides financing to the
banking system via discount and Lombard facilities, and it sets
minimum reserve requirements for the banks.  The discount rate
as of October 31, 1994 was 4.5 percent.


2.  Exchange Rate Policies

    The Deutsche mark is a freely convertible currency, and the
government does not maintain exchange controls.  Germany
participates in the exchange rate mechanism of the European
Monetary System.  The Bundesbank intervenes in the foreign
exchange markets infrequently, usually in cooperation with
other central banks in order to counter disorderly market
conditions.


3.  Structural Policies

    Since the end of the second world war, German economic
policy has been based on a "social-market" model which has been
characterized by a higher level of direct government
participation in the production and services sector than in the
United States.  In addition, an extensive regulatory framework,
which covers most facets of retail trade, service licensing and
employment conditions has worked to limit market entry by not
only foreign firms but also by German entrepreneurs.  Although
the continuation of the "social market" model remains the goal
of all mainstream political parties, changes resulting from the
integration of the German economy with those of its EU
partners, the shock of German unification and a perceived
decline in competitiveness in its traditional manufacturing
industries, has forced a rethink of the German post-war
economic consensus in the so-called Standort Debate.

    As a result of this debate, numerous structural impediments
to the continued growth and diversification of the German
economy have been identified.  These can be broadly grouped as
follows:

    --An excessively rigid labor market

    --A regulatory system which discourages new entrants
especially in the services sector

    --High taxes and social charges

    --Lack of risk and venture capital for start-up firms

    In recognition of these problems, the government has been
pursuing a program of reforms since the mid-1980's focusing on
tax reform, privatization and deregulation.  Within the last
year, the reorganization of the German Federal Railroad, and
the operating entities of the German Federal Post into stock 
companies was completed.  The federal government also reduced
its majority holdings in Lufthansa to less than 36 percent with
the objective of selling the entire stake by the end of 1995. 
U.S. firms are likely to benefit from these developments as
purchasing decisions are driven more by commercial criteria
than in the past.  It is also expected that the introduction of
competition in some of these formerly protected sectors will
eventually result in lower costs for the users.

    Despite the progress in recent years, lack of competition
in several protected sectors continues to drive up business
costs in Germany.  The service sectors which continue to be
subject to excessive regulation and market access restrictions
include communications, energy, retail distribution and
insurance.  A government proposal to modify or eliminate the
so-called "rebate and premium" laws which limit firms' pricing
and marketing flexibility failed to pass the German parliament
in the summer of 1994.  The government has indicated it may
reintroduce legislation to reform these laws in the next
session.  Opposition from small shop owners also derailed an
attempt to revise Germany's highly restrictive regulations on
store hours.  Irrespective of short-term German government
reform priorities, the EU is expected to continue to pressure
its member states to reduce barriers to trade in services
within the Community.  U.S. firms, especially with operations
in other EU states, will likely benefit from EU market
integration efforts over the long term.


4.  Debt Management Policies

    Germany has recorded current account deficits since 1991
due to a dramatic drop in the country's traditionally strong
trade surplus, related in part to strong eastern German demand,
and exacerbation of Germany's services account deficit because
of the substantial foreign borrowing undertaken to finance the
costs of unification.  Nonetheless, due to large current
account surpluses from the 1970's through 1990, Germany remains
the world's second largest creditor, with net foreign assets
estimated at some USD 275 billion at the end of 1993.  The
current export-led recovery is widely projected to improve both
the trade surplus and the current account balance.


5.  Significant Barriers to U.S. Exports 

    Germany is one of the most important trade partners
worldwide for the U.S.  The country's strong economy poses
virtually no formal barriers to U.S. trade or investment
interests.  It is possible to identify some pitfalls,
especially for the newcomer to the German market, but on the
whole the Federal Republic is an excellent place for U.S.
companies to do business.

    Import Licenses:  The FRG demands virtually no import
licenses, having abolished almost all national import quotas. 
Germany is subject, however, to the import-license requirements
imposed on some products by the European Union.  (An example is
the recent imposition of a quota for "dollar" bananas under the
EU's banana import regime.)

    Services Barriers:  Conditions of access vary considerably
but the Embassy has received very few complaints.  Some
progress has been made in participation of foreign companies in
banking and other financial services.  The insurance market is
still a tough one to crack.  Telecommunications services are
being increasingly deregulated.  

    Standards, Testing, Labeling, and Certification:  Germany's
regulations and bureaucratic procedures can prove a baffling
maze, blunting the enthusiasm of U.S. exporters.  While not
"protectionist" in the classic sense, government regulation
does offer a degree of protection to German suppliers.  Safety
standards, not normally discriminatory but sometimes zealously
applied, and exemplified by, for example, the testing and
licensing procedures of the Technischer Ueberwachungsverein
e.V. (TUV, or technical inspection association), complicate
access to the market for many U.S. products.

    Government Procurement Practices:  German government
procurement is non-discriminatory and appears to comply with
the General Agreement on Tariffs and Trade (GATT) as well as
the terms of the U.S.-FRG Treaty of Friendship, Commerce and
Navigation.  That said, it is undeniably difficult to compete
head to head with major German suppliers who have long-term
ties to German government purchasing entities.  Those areas
which fall outside of GATT agreement coverage, such as military
procurement or procurement of services, have been the most
susceptible to these problems.  With the implementation,
January 1, 1995, of the Uruguay round agreement under the
auspices of the WTO, GATT coverage will commence for some of
these areas.

    Germany recently implemented the EU Utilities Directive and
its related Remedies Directive.  With the recent conclusion of
a US-EU memorandum of understanding on utilities procurement of
heavy electrical equipment, U.S. firms now can claim rights
equivalent to European firms under the Utilities Directive in
this sector.  Under the terms of the U.S.-German FCN, Germany
is also to provide U.S. firms with nondiscriminatory treatment
in the telecommunications sector.

    Investment Barriers:  The German investment climate is
generally very open, but some of the concerns mentioned above,
such as access to services markets and standards and
procurement questions, may also be seen as obstructing an
increase in investments.  

    Customs Procedures:  Customs procedures at German
ports-of-entry are relatively streamlined and efficient.


6.  Export Subsidy Policy 

    Germany does not directly subsidize exports outside the EU
framework of export subsidies for agricultural goods. 
Government or quasi-government entities do provide export
financing, but Germany subscribes to the OECD guidelines that
restrict the terms and conditions of export finance.  An
earlier policy that provided exchange rate guarantees to the
German Airbus partner has been terminated, largely as a result
of U.S. pressure and a GATT finding against this program. 


7.  Protection of U.S. Intellectual Property  

    Germany is a member of the World Intellectual Property
Organization and party to 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.

    Intellectual property is generally well protected in
Germany.  The German Patent Bureau, Verwertungsgesellschaft
(which handles printed material), and GEMA (the German
rough-equivalent to the American Society of Composers, Authors
and Publishers) are the agencies responsible for intellectual
property protection.  U.S. citizens and firms are entitled to
national treatment in Germany.  

    Legislation to transpose the EC software copyright
directive into national law was passed in June 1993.  This new
law met U.S. concerns about IPR protection for computer
software by lowering the standards of originality which had
undermined the level of protection for many business
application programs.  But American software firms are still
concerned with the perceived level of software piracy by
businesses in Germany.  These concerns will be addressed when
Germany implements provisions required by the TRIPs portion of
the Uruguay Round, most likely before the end of 1995


8.  Workers' Rights 

    a.  Right of Association

    The constitution guarantees full freedom of association
(Article 9).  The workers' rights to strike and the lock-out
are also legally protected activities.  These rights have been
developed further by jurisdiction.

    b.  Right to Organize and Bargain Collectively

    The German industrial relations system consists of a series
of statutory mechanisms for sharing power over certain
activities within firms, coupled and overlapping with an
autonomous private collective bargaining system developed
between the unions and employers organizations.  The system of
codetermination and worker participation (Mitbestimmung) is
regulated at different levels by various laws enacted between
1951 and 1989.  They cover two basic spheres: day-to-day
social, personnel, and economic matters, which are handled by
elected works councils; and basic business decisions at the
enterprise level, made by supervisory or management boards,
which include members elected by the workers.  Wages, salaries
and working conditions are determined either by collective
bargaining agreements or individual contracts.  Collective
bargaining agreements are legally binding and can be enforced
through the courts.  Under certain circumstances, a collective
bargaining agreement can be declared "generally binding" by the
Government which means that all employers in the industry
covered by the agreement must abide by its provisions,
regardless of whether or not they are members of the
association that signed the agreement.

    c.  Prohibition of Forced or Compulsory Labor

    The German constitution guarantees every German the right
to choose his own occupation and prohibits forced labor
although some prisoners are required to work.

    d.  Minimum Age for Employment of Children

    German legislation in general bars child labor under age
15.  There are limited exemptions for children employed in
family farms, delivering newspapers or magazines, or involved
in theater or sporting events.

    e.  Acceptable Conditions of Work

    German labor and social legislation is comprehensive and,
in general, imposes strict occupational safety and health
standards.  The legislation and regulations may be supplemented
by collective agreements which cover entire industries or
regions.  The resulting standards are widely considered to be
among the very highest in the European Union, and thus the
World.  European Union legislation is becoming more and more
important in this area.  There is also a mandatory occupational
accident and health insurance system for all employed persons.

    f.  Rights in Sectors with U.S. Investment

    The enforcement of German labor and social legislation is
strict, and applies to all firms and activities, including
those in which U.S. capital is invested.  Employers are
required to contribute to the various mandatory social
insurance programs and belong to and support Chambers of
Industry and Commerce which organize the dual (school/work)
system of vocational education.



  Extent of U.S. Investment in Selected Industries.--U.S. Direct
Investment Position Abroad on an Historical Cost Basis--1993

                    (Millions of U.S. dollars)
                                                                
              Category                          Amount          

Petroleum                                              2,468
Total Manufacturing                                   22,283
  Food & Kindred Products                   2,054
  Chemicals and Allied Products             3,812
  Metals, Primary & Fabricated              1,194
  Machinery, except Electrical              5,368
  Electric & Electronic Equipment             877
  Transportation Equipment                  5,293
  Other Manufacturing                       3,686
Wholesale Trade                                        2,945
Banking                                                2,229
Finance/Insurance/Real Estate                          5,107
Services                                                 862
Other Industries                                       1,630
TOTAL ALL INDUSTRIES                                  37,524   

Source: U.S. Department of Commerce, Bureau of Economic
Analysis

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