FRANCE'S INDUSTRIAL POLICY: MORE MONEY FOR EUROPEAN

UNCLAS SECTION 01 OF 02 PARIS 002747

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E.O. 12958: N/A
TAGS: ECON EIND ECPS TNGD TINT FR
SUBJECT: FRANCE'S INDUSTRIAL POLICY: MORE MONEY FOR EUROPEAN
PROJECTS


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Summary
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1. (SBU) On April 25, French President Jacques Chirac unveiled the
first six industrial projects to receive public funding following
their recent selection by the Agency for Industrial Innovation (AII)
-- his weapon of choice for advancing his new industrial policy.
Unsurprisingly, Chirac's pet project to create a European Internet
("Google") search engine has been approved, along with Alcatel's
Satellite mobile TV project, and three energy saving schemes,
including a new Franco-German light rail subway train. At the same
time, Chirac announced a new fund to be launched next July for the
development of small and medium-sized companies. By announcing two
major projects with a Franco-German and European dimension, Chirac
hopes to strengthen a faltering partnership with Angela Merkel's
Germany, extend his industrial policy model to the EU, and posit
France and Europe again as an "alternative" to U.S. dominance in
high technology. End Summary.

Stimulating French Industrial Policy: AII
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2. (SBU) The Agency for Industrial Innovation (AII),set up by
President Jacques Chirac in August 2005 and inaugurated earlier this
year, aims at inspiring "national champions" to invest in innovative
areas such as nanotechnology, biotechnology, renewable energies, and
energy efficiency through subsidies and reimbursable advances.
Jean-Louis Beffa, Chairman of French glassmaker Saint Gobain, is
President of the Board of Trustees of AII, which includes French
CEOs and high-level economists. Based on Beffa's recommendations,
AII will use its 1.7 billion Euro endowment (mostly revenues from
privatizations) to cover half of the cost of the joint
public-private sector R&D projects it chooses to support in the form
of subsidies and reimbursable advances, with the companies expected
to match the other half. Carried out over three to seven years, the
first six projects are expected to cost some 600 million euros.
However, they will first need to be approved by the EU Commission to
ensure they do not violate EU rules against state aid to companies.


3. (SBU) In addition to these first six projects, AII will be
examining another 30 projects before the end of the year. The new
President of the Governing Board of the Agency , Robert Havas, a
former advertising executive, has recently hired 12 high-caliber
private sector French executives to beef up the agency's staff.
Among them is Jean-Jacques Yarmoff, who has spent 15 years working
for U.S. biotechnology firms.

The Six Industrial Projects
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4. (SBU) The most high-profile of the six projects is
unquestionably the Franco-German search engine called "Quaero",
(from the Latin "I seek"),personally backed by Chirac to counter
U.S. domination on the Internet. The current partners in the
consortium are French consumer-electronics firm Thomson SA, France
Telecom, Deutsche Telekom, and Exalead, a powerful French search
tool introduced in October 2004. German media group Bertelsmann has
not yet decided whether to join the consortium, which also groups
French and German research institutes. Quaero is not a text-based
search engine, but rather is mainly meant for multimedia search. It
will utilize techniques for recognizing, transcribing, indexing, and
automatically translating audiovisual documents and it will operate
in several languages.


5. (SBU) A second project involves French telecom equipment maker
Alcatel's "Unlimited Mobile TV for Mass Market" initiative, made
public last February. With this plan, Alcatel and its French
partner Safran intend to use satellites to broadcast television
programs over mobile phones.


6. (SBU) Three schemes focus on energy saving: (1) a new
low-energy Franco-German advanced light rail train called "NeoVal",
built by Germany's Siemens and France's Lohr; (2) a low-energy
housing project by French firm Schneider Electric called "Homes"
that aims to slash household electricity use by 20 percent; and (3)
a hybrid diesel-electric car, already under development by the
French car maker PSA Peugeot.


7. (SBU) The final plan approved by AII calls for the French firm
Roquette to produce plastics from starches obtained from corn, wheat
and potatoes. This would reduce dependence on oil and gas, since
most plastics are currently made from hydrocarbons.
More Funding for Other Industrial Policy Tools
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8. (SBU) In addition to the new industrial projects financed by
AII, President Chirac confirmed that his other major industrial
policy tool, the new 66 competitiveness clusters throughout France,
will receive 1.5 billion euros in GOF funding between now and 2008.
Designed to support research and development in the regions with the
most competitive high-tech companies, the funding will consist of a
combination of tax breaks and other credits for research and
development, and would encourage match-making among French
companies. The six industrial clusters, which are "operational" as
of April 25 include: a medical/biotech cluster in the southeastern
Rhone-Alpes region; an aerospace cluster around the southwestern
cities of Bordeaux and Toulouse, where the passenger jet maker
Airbus is based; a cluster around Paris for complex transport and
navigation systems; a group for secure telecommunications
technologies in the south near Sophia-Antipolis that will complement
research done by the chip maker STMicroelectronics; a nanotechnology
cluster near the southeastern city of Grenoble; and a biotech
cluster "MediTech-Sant," which groups researchers and businesses
around Paris.


9. (SBU) President Chirac gestured to France's smaller firms by
proposing the creation of a two-billion-euro fund next July to
promote their innovation and development efforts. Chirac also
announced his intention to ask the Government to "create the
conditions for a strong development" of small, innovative start-up
companies in France. His recommendations should be included in the
next Finance Bill.

Comment
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10. (SBU) Hoping to keep France from becoming a "museum country",
Chirac has urged the government and the French (and European)
private sectors to rise to the challenge set by the U.S. and Japan,
and increasingly China, regarding the development of new
technologies. The French government's predilection for a
government-directed approach is nothing new. But times have changed,
and this announcement has driven something of a wedge in the French
business community between those who believe that it still takes
government-financed "grand plans" to get France moving forward (like
Airbus),and those who are wary of GOF involvement in industry.
Furthermore, smaller firms fear that large companies will eat up all
the government funding, leaving them nothing to develop their own
research and development programs. Yet political concerns are also
driving this effort, namely the desire to reinvogorate a currently
weak Franco-German partnership, and to position France and Europe in
such a way as to be seen as equals and "alternatives" to U.S. and
Asian dominance in new technologies. End Comment.

Stapleton