Identifier
Created
Classification
Origin
06PARIS332
2006-01-18 17:12:00
UNCLASSIFIED
Embassy Paris
Cable title:  

FRANCE 2006 INVESTMENT CLIMATE STATEMENT

Tags:  EINV EFIN ELAB PGOV KTDB FR OPIC USTR 
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UNCLAS SECTION 01 OF 18 PARIS 000332 

SIPDIS

PASS FEDERAL RESERVE
PASS OPIC
PASS USTR
STATE FOR EB/IFD/OIA, EUR/WE
TREASURY FOR DO/IM SOBEL, RHARLOW, LHULL
TREASURY ALSO FOR DO/IMB AND DO/E WDINKELACKER
USDOC FOR 4212/MAC/EUR/OEURA

E.O. 12958: N/A
TAGS: EINV EFIN ELAB PGOV KTDB FR OPIC USTR
SUBJECT: FRANCE 2006 INVESTMENT CLIMATE STATEMENT

REF: 05 STATE 201904

UNCLAS SECTION 01 OF 18 PARIS 000332

SIPDIS

PASS FEDERAL RESERVE
PASS OPIC
PASS USTR
STATE FOR EB/IFD/OIA, EUR/WE
TREASURY FOR DO/IM SOBEL, RHARLOW, LHULL
TREASURY ALSO FOR DO/IMB AND DO/E WDINKELACKER
USDOC FOR 4212/MAC/EUR/OEURA

E.O. 12958: N/A
TAGS: EINV EFIN ELAB PGOV KTDB FR OPIC USTR
SUBJECT: FRANCE 2006 INVESTMENT CLIMATE STATEMENT

REF: 05 STATE 201904


1. Investment Climate Statement

Contents


A. French Investment Regime

A1. Openness to Foreign Investment
A2. Conversion and Transfer Policies
A3. Expropriation and Compensation
A4. Dispute Settlement
A5. Performance Requirements and Incentives
A6. Right to Private Ownership and Establishment
A7. Protection of Property Rights
A8. Transparency of the Regulatory System
A9. Efficient Capital Markets and Portfolio Investment
A10. Political Violence
A11. Corruption


B. Bilateral Investment Agreements


C. OPIC and Other Investment Insurance Programs


D. Labor


E. Foreign Free Trade Zones/Ports


F. Foreign Investment Statistics




A. French Investment Regime

Ensuring that France's investment climate is attractive to
foreign investors is a stated priority for the French
government, which sees foreign investment as a way to create
durable jobs and stimulate growth. Despite this, comments
by some Government officials following therumored takeovers
of French firms by foreign competitors in 2005, and the
ensuing debate over "economic patriotism," caused some
observers to question the depth of this commitment.
Nevertheless, investment regulations are simple, and a range
of financial incentives for foreign investors are available.
A public and commercial establishment, the French Agency for
International Investment (Agence Francaise pour les
Investissements Internationaux - AFII) integrates all
offices responsible for promoting investment in France. The
agency combines the overseas offices of the Invest in France
Agencies (IFA),with the Invest in France Network (IFN)
association.

Foreign investors say they are attracted to France by its
skilled and productive labor force; its central location in

Europe with its free movement of people, services (with
certain limitations),capital and goods that took on even
greater significance with the introduction of Euro coins and
bills in January 2002; good infrastructure; and its
technology-oriented society. However, despite a decade or
more of halting economic reforms and liberalization, U.S.
and foreign companies often point to high payroll and income
taxes, pervasive regulation of labor and products markets,
and occasional negative attitudes toward foreign investors
as disincentives to investing in France.

A1. Openness to Foreign Investment

The Formal Investment Regime

The formal French investment regime remains among the least
restrictive in the world. While there is no generalized
screening of foreign investment, legislation passed at the
end of 2005 dictates that only acquisitions, irrespective of
size or the nationality, involving "sensitive" sectors are
subject to prior approval by the Finance Minister
([http://www.legifrance.gouv.fr] - search the 31 December
2005 French Official Journal - decree 2005-1739 of 30
December 2005). For investors from non-EU countries (or not
from European Economic Space Countries having signed an
administrative convention with France),protected sectors
include: gambling activities (e.g., casinos); private
security services; research, development or production of
chemical or biological antidotes; activities concerning
equipment for intercepting communications or eavesdropping;
services for evaluation of security of computer systems;
dual-use (civil and military) technologies; cryptology;
activities of firms that are repositories of defense
secrets; research, production or trade in arms, munitions,

SIPDIS
explosives or other military equipment; or any other
industry supplying the defense ministry any of the goods or
services described above. The EU Commission has said it
would study the December 2005 decree to ensure consistency
with European Community law.

The decree also changes the triggers for GOF investment
scrutiny. The prior decree required GOF review if a
proposed investment were to rise above the threshold of 33%
of the outstanding shares or voting rights. Now, the decree
spells out that any investment that grants control of a
firm, or surpasses the 33% threshold, or involves any part
of any branch of any firm that has established headquarters
in France, is subject to GOF review.
Authorities also consider place of residence, rather than to
the nationality, of a potential investor. The place of
residence of a corporate investor is determined by the place
of residence of its ultimate beneficial owners, without
regard to place of incorporation. While firms owned or
controlled by American citizens legally resident in an EU
country will usually be considered as EU residents, France
will normally consider firms established or incorporated in
other EU countries, and owned or controlled by American
residents as non-EU residents.

To determine if non-EU investors control a firm, the French
government looks at the residency of the registered office
("siege social") and the ability of non-EU investors to veto
key management decisions or commercial ties (such as loans,
guarantees, options, licenses, or contracts) if these
factors effectively make the French company dependent on
foreign investors. Firms with questions about their
residency status should contact the Office of Foreign
Investments at the following addresses:

Ministere de l'Economie, des Finances et de l'Industrie,
Direction Generale du Trsor et de la Politique Economique:

Multicom 2 - Services, Investissements et Propriete
Intellectuelle
139, rue de Bercy
75012 Paris, France
Tel: (33)1 44-87-72-87

Service du Financement de L'Economie
FINENT 1 Epargne et March Financier
139, rue de Bercy
75012 Paris, France
Tel: (33)- 1- 40-04-04-04

Agence des Participations de l'Etat
139, rue de Bercy
75012 Paris, France
Tel: or (33)- 1- 40-04-04-04

AFII's website (http://www.investinfrance.org/NorthAmerica
in English) explains basic regulations covering foreign
direct investment, and a general framework on legal issues
to help business decisions, notably in its "Doing Business
in France" report. The website of the Paris Chamber of
Commerce and Industry provides French summaries of
regulations applicable to foreign direct investment:
(http://www.inforeg.CCIP.fr).

Informal Impediments to Foreign Investors

The January 1, 1999 introduction of the Euro as the single
currency of the European Monetary Union (EMU),including
France, has increased the competitive pressures on France to
improve its domestic business and investment climate in
order to promote growth and create new jobs. In addition,
France has responded to a more competitive international
investment climate by implementing some market-oriented
economic reforms that increase the attractiveness of the
French economy to foreign investors, and by offering a
variety of investment incentives. Foreign investors also
say they are attracted to France by its central location in
Europe, highly skilled labor force, and good infrastructure.
France is closing the gap with the U.S. and some other
European countries in personal computer use and Internet
access.
Yet, while today's foreign investors face less interference
than was once the case, more than a decade of reforms has
not entirely overcome a traditional preference for state
intervention and a sometimes-reflexive opposition to foreign
investment. In some cases, this can be seen in labor
organization opposition to acquisitions of French businesses
by U.S. firms, often reflecting a perception that U.S. firms
focus on short-term profits at the expense of employment.
In other cases, French firms have stated a preference for
working with French and European, rather than U.S. firms. A
degree of opaqueness in the privatization process (see
below) can also aggravate suspicions about the equal
treatment of foreign investors in publicly held firms.

In addition, deregulation is far from complete and the state
remains very involved in economic life. There is extensive
regulation of business and labor markets, and business
taxation rates are high compared to other leading industrial
countries. Foreign investors most often cite complicated
and pervasive labor regulation and high income and payroll
taxes as the greatest disincentives to investing in France.
In the case of labor market regulation, the impact on
companies of the 35-hour legal workweek is mixed. Many
companies took the opportunity of negotiations with
employees on the switch to the 35-hour workweek to implement
work-hour annualization for greater labor flexibility.
Companies also benefited from a further cut in payroll taxes
on low wages. On the negative side, the 35-hour workweek
increased unit labor costs since total wages remained
unchanged even though the number of hours worked declined.
The government is taking measures to make the law less rigid
and is seeking to introduce more flexibility in employment
contracts (See D. Labor).

The French and U.S. business communities initially described
France's new "social modernization law", passed in July
2001, as creating burdensome new obligations. The center-
right government elected in 2002 selectively implemented the
law through its power to implement by decree. In addition,
the Government introduced a broad range of new investment
promotion and competitiveness measures in 2005.

In making its decision on raising the minimum wage an
average of 5.5% (effective July 2005),the Government aimed
to stimulate household consumption, the motor of economic
growth. Despite the increase in the minimum wage, wages in
the private and public sectors are expected to accelerate
only slightly compared with last year (2.5-2.6% compared
with 2.5% in 2004) as the high unemployment rate restrains
wage demands. The government decision to apply income tax
cuts in 2007 should benefit the French economy, making
France a more attractive place for both French and foreign
investment.

The French treat two social security taxes, the
"Contribution Sociale Generalisee" (CSG) and the
"Contribution au Remboursement de la Dette Sociale" (CRDS),
as social security contributions. U.S. contributors to the
U.S. Social Security system do not pay these taxes. (Based
on the "May 2 2001-377 ordonnance" to apply the 1408/71 EEC
regulation, only "individuals who are subject to income
taxes in France and contribute to the French social security
system including health insurance pay CSG and CRDS". The
related "circulaire d'application" was published in the May
20, 2001 "Bulletin Officiel du Travail, de l"Emploi et de la
Formation Professionnelle" [http://www.travail.gouv.fr].

On December 8, 2004, the United States amended the income
tax convention between the United States and France to avoid
double taxation and the prevention of fiscal evasion, and
the estate and gift tax convention to avoid double taxation
with respect to taxes on estates, inheritances and gifts
[http://www.treas.gov/offices/tax-policy/trea ties.shtml].
In December 2005, the French government introduced two bills
ratifying the two amendments. The provisions will resolve
problems related to the double taxation of partnerships and
estates.

English summaries of labor and tax regulations applicable to
foreign companies in France are available at the AFII's
website [http://www.investinfrance.org/] and at the Paris
Chamber of Commerce and Industries' website
[http://www.CCIP.fr].

France's Privatization Program

The former Socialist-led government that took office in July
1997 returned to the private sector all or parts of its
stakes in a number of large companies, banks and insurance
groups. U.S. firms showed interest in some of these sales.
The current center-right government, elected in 2002,
announced preliminary plans, but the global slump in air
transportation and equity markets put a brake in
privatizations through the sale of shares. In 2003 and
2004, the government reduced its stakes in large companies
such as Air France-KLM (to 44.6 from 54.0 percent),France
Telecom (to 42.2 from 54.5 percent),Thales (formerly
Thomson CSF, to 31.3 from 33.3 percent),Renault (to 15.6
from 26.0 percent),and Thomson (to 2.0 from 20.8 percent
through TSA). Smaller projects were carried out:
privatizations of SAPRR (Paris-Rhin-Rhone highway company),
and of the electricity company SNET. In the energy sector,
the government sold shares in EDF and GDF, retaining a 85.9%
stake in EDF and a 79% stake in GDF, but postponed the
privatization of Areva. After a long selection process in
2005, the sale of toll-road companies ASF, APRR and Sanef
will be effective in early 2006. Capital openings for
employees of Aeroports de Paris and EDF are planned for

2006. The government still has stakes in Bull and Safran
(renamed after Sagem merged with Snecma),and in 1,280 other
firms, and has stated its intention to continue
privatization, based largely on the same criteria as the
Socialists had used.

Sales of government interests are conducted either through
market-based public offerings or, more often, through an off-
market bidding process. In both cases, key decisions are
made by the Ministry of Economy, Finance and Industry on the
advice of the quasi-independent "Commission des
Participations et des Transferts" (formerly known as the
Privatization Commission). Both of these consider financial
and business plans submitted by bidders. While there is a
strict legal and procedural process regulating these
decisions, the confidential nature of off-market sales can
raise suspicions about the equal treatment of foreign versus
French bidders. This can in itself have a chilling effect
on foreign investment. In the past, a policy of selling
former holdings to "core" shareholders in an effort to avoid
the splitting-up of companies or sales of sensitive state
assets to foreign investors also hampered market efficiency
and tended to favor French firms.

When privatizing state-owned firms either through off-market
placements or market-based offerings, the 1993 privatization
law gives the French government the option to maintain a so-
called "golden share" to "protect national interests." This
provision is not specifically targeted at foreign companies,
and has not been a part of every privatization operation. A
golden share gives the government three legal rights:

-- To require prior authorization from the Ministry of the
Economy, Finance and Industry for any investor or group of
investors acting in concert to own more than a certain
percentage of a firm's capital. The thresholds would apply
to all investors;

-- To name up to two non-voting members to the firm's board
of directors; and

-- To block the sale of any asset to protect "national
interests." Assets could include shares, but also
buildings, technology, patents, trademarks, and any other
tangible or intangible property.

The French Government will have to reconsider its use of
golden shares in future privatization operations following
the June 2002 European Court of Justice's decision to
reaffirm the basic principle of free movement of capital in
the EU. The Court stated that the use by some EU countries,
including France, of golden shares was a serious impediment
to that principle. Nonetheless, the Government is
considering holding a golden share in the privatization of
Areva due to loopholes in the court's judgment. Areva's
chairman stated that the golden share could be consistent
with EU requirements.
French Government Participation in R&D Programs
The French government (GOF) contributes roughly 1 percent of
the GDP to R&D while the industrial sector contributes 1.2
percent, according to 2004 figures. Despite budgetary
restraints, the GOF has decided to increase spending for
government research by an additional one billion euros
annually from 2005 to 2007. The GOF thus confirms its intent
to increase R&D spending to 3 percent of the GDP by 2010,
with two percent coming from the private sector. The French
government relies on increased tax credits and incentives for
the development of new investment structures to boost
industrial research. The GOF has also begun an ambitious
effort to rethink its R&D strategy, organization, evaluation,
and funding as reflected in the forthcoming Research and
Innovation Bill (February 2006). In 2005, the GOF created
two agencies -- an NSF-style National Research Agency and an
Agency for Industrial Innovation -- to encourage basic and
applied research programs selected on the basis of a
competitive, merit-based review system, to help develop
public/private partnerships, and to facilitate technology
transfer to the economic world. The GOF also supports
partnerships between public research agencies and
universities at the regional level within the framework of
"Research and Higher Education Poles," and encourages the
cross-fertilization between research and innovation notably
in the framework of newly designated "competitiveness
clusters."

The GOF sponsors R&D and technology development programs at
three different levels:

-- International/European programs (e.g. ITER, ESA, CERN,
EUREKA, EU Framework program);

-- Technology development programs in the private sector
(approx. 45 percent of R&D expenditures are funded by the
French government),with specific programs to encourage the
transfer of research and to aid small and medium firms; and

-- National research programs (mostly administered by the
Research Ministry),with specific emphasis given to health
and biotech (fight against cancer, research on aging and
physical disabilities, focus on new epidemics,
genomics/genetics); resource management (including food
resources, food safety, water management); sustainable
development and the fight against greenhouse gases (research
on clean vehicles, new energies, energy storage and use of
hydrogen, nuclear fusion); information and communication
technologies; nanotechnologies; and space.

The breakdown of the 2006 Higher Education and Research
budget is as follows (in millions of euros):

Higher education and university research: 10,125; + 10% vs.
2005
Scientific and technical research: 3,602; -2% vs. 2005
Space research: 1,248; +1% vs. 2005
Energy sector research: 658; +7% vs. 2005
Industrial research: 527; +24% vs. 2005
Others: 4,527

For access to R&D subsidies, the French government provides
national treatment to all foreign companies registered in
France, allowing them to receive the same treatment as French
companies. U.S. companies have experienced no difficulty in
participating in these opportunities.

Visas, Work Requirements

The government of France requires that foreign citizens
complete extensive procedures if they wish to work in
France. The requirements are essentially the same whether
foreign citizens work for French or foreign-controlled
firms. Non-EU nationals who intend to work or conduct any
commercial activity in France must receive a long-term visa
and a work permit (Carte de travail) or business permit
(Carte de commercant - foreign trader's card) before
establishing residence in France. Information can be
obtained from French consulates in the United States. The
web address is [http://www.info-france-
usa.org/intheus/consulates.asp]. For more information on
the foreign trader's card, please consult the Invest in
France agency Web site at:
[http://www.investinfrance.org/France/Living/ Expatriate/?p=f
ormalities&1=en]. For more information on other types of
visas and applicable fees, contact your local Consulate
General of France. In addition, a foreigner's ability to
practice a profession may be curtailed by government
regulation and the regulations of French professional
associations. For example, lawyers seeking to practice in
France must become members of the French bar before they can
practice any type of law under their own names. This
requires passing the bar examination in French. A number of
legislative changes to these regulations are under
consideration.

A2. Conversion and Transfer Policies

All inward and outward payments must be made through
approved banking intermediaries by bank transfers. There is
no restriction on repatriation of capital. Similarly, there
are no restrictions on transfers of profits, interest,
royalties, or service fees. Foreign-controlled French
businesses are required to have a resident French bank
account and are subject to the same regulations as other
French legal entities. The use of foreign bank accounts by
residents is permitted.

France has little effective foreign exchange control
regulations. For exchange control purposes, the French
government considers foreigners as residents from the time
they arrive in France. French and foreign citizens are
subject to the same rules. Residents are entitled to open
an account in foreign currency with a bank established in
France and to establish accounts abroad. Residents must
report the account number for all foreign accounts on their
annual income tax returns. French-source earnings may be
transferred abroad.

As part of the international effort to combat money
laundering and the financing of terrorism, France's banking
regulations have undergone several changes, which affect the
handling of checks, as recommended by the Financial Action
Task Force. Additional changes are expected. France
sometimes uses its powers under national law to execute
asset freeze orders against terrorists, as well as operating
within EU structures.

A3. Expropriation and Compensation

Under French law, private investors are entitled to
compensation if their properties are expropriated, and such
compensation must be adequate and paid promptly. In
France's bilateral investment treaties, the French
government promises to provide both prompt and adequate
compensation. There have been no recent disputes involving
expropriation of U.S. investments.

A4. Dispute Settlement

There have been few major disputes involving established
U.S. firms in recent years. Government decisions in
investment cases can be appealed to administrative tribunals
and ultimately to the Council of State (Conseil d'Etat).
The rights of U.S. investors are also protected by the U.S.-
French bilateral convention (see Section B below).

The judicial system is independent. Property and
contractual rights are enforced by the French civil code.
Judgments of foreign courts are accepted and enforced by
courts in France once they have been "declared executor" by
a French judge through "executor" proceedings (Art. 2123 of
the French Civil Code and Art. 509 of the Civil Procedure
Code). However, in some civil cases and in bankruptcy
cases, foreign judgments are recognized and enforced by
French courts without executor proceedings.

France is a member of the World Bank's International Center
for the Settlement of Investment Disputes (ICSID - [http://
www.WORLDBANK.org/ICSID]). In addition, in most of its
bilateral investment treaties (BIT's) it has agreed to
accept binding arbitration to resolve investor-state
disputes. However, most of France's BIT partners are
developing countries whose investors have few investments in
France. (See below).

A5. Performance Requirements and Incentives

Investment Incentives

France offers a range of financial incentives to foreign
investors. The following information reflects incentives as
they existed at time of this writing. The government has a
broad range of investment and competitiveness measures in
the legislative pipeline.

France's domestic planning and investment promotion agency,
DATAR (Delegation a l'Amenagement du Territoire et a
l'Action Regionale) was renamed DIACT (Delegation
Interministerielle a l'Amenagement et la Competitivite des
Territoires) in December 2005. It has a broad mandate,
including increasing the "attractiveness" of the national
territory for foreign investors and assisting potential
investors. In addition, financial subsidies and tax
incentives are offered at the local, regional and national
government level to attract investment to France's less
affluent areas. Incentives are available equally to French
and foreign investors and eligibility requirements are the
same.

Within the French government, foreign investment promotion
is the responsibility of the AFII "Invest in France Mission"
headed by an ambassador at-large, who is based at the
Ministry of the Economy, and backed up by DIACT. DIACT
maintains offices throughout France and around the world to
seek out and advise potential investors on project
development, site selection, investment incentives (the
largest of which are administered by DIACT) and
administrative and legal requirements. DIACT's overseas
offices were re-named "Invest in France Agencies" (IFA --
IFANA in North America) in 2001. There are three
DATAR/IFANA offices in the United States:

Northern and Eastern States

IFANA New York
810 Seventh Avenue, Suite 3800
New York, NY 10019
Tel: (212) 757-9340
Fax: (212) 245-1568


Western and Southern States

IFANA Palo Alto
575 High Street, Suite 310
Palo Alto,
CA 94301-1663
Tel: 650/326-8440
Fax: 650/326-8438

Midwestern States

IFANA Chicago
205 North Michigan Avenue, Suite 3750
Chicago, IL 60611
Tel: (312) 628-1054
Fax: (312) 628-1033

AFII's internet address is [http://www.InvestinFrance.org].
DATAR's site, [http://www.datar.gouv.fr/] or
[http://www.DIACT.gouv.fr].

The primary investment incentive offered through DIACT is
the Prime d'Amenagement du Territoire (PAT). DATAR had
revised downward the PAT program at the European
Commission's request. Nonetheless, PAT incentives remain
generous for investment in disadvantaged zones (parts of
north and central France, and Corsica). The list of
eligible zones will stay the same until December 31, 2006.
Interestingly the current PAT system is more supportive of
small and medium sized companies in the industry, services,
and research and development sectors. (New rules were issued
in the April 13, 2001 and June 6, 2001 "Journal Officiel").
Other investment incentives may also be available. New
related criteria have been set for the 2000-2006 period.
Potential investors should consult DIACT and AFII to
determine the full range of possibilities, including:

-- Research and development project grants, notably for
businesses located in competitiveness clusters
-- Special tax treatment for company headquarters

-- Local and regional tax holidays and special subsidies

-- "Industrial conversion" zones featuring tax breaks and
grants for job-creation

-- Special access to credit for small and medium-sized
enterprises

-- Assistance for training, including a portion of wages
paid to employees in training.


Besides DIACT/IFA at the national level, several French
cities and regions have developed their own investment
promotion agencies that advise potential investors, offer
administrative assistance, and oversee investment
incentives. The February 2002 Local Democracy Law
("Democratie de proximite" - www.legifrance.gouv.fr) gives
regional councils ("Conseils Regionaux") full powers to
establish (without decree or national convention) schemes
for direct aids to companies (subsidies, reduced interest
rates on loans, and advances). Each "Conseil Regional" has
it own website, which can be found with any internet search
engine using "conseil regional" and the name of the
appropriate region.

All incentives are covered by regulations set by the
European Commission.

Performance Requirements

Other than those linked to incentives, there are no
mandatory performance requirements established by law.
However, the French government will generally require
commitments regarding employment or research and development
from both foreign and domestic investors seeking government
financial incentives. For example, to be eligible for DIACT
grants, the French government usually requires that firms,
whether owned by EU or non-EU residents, create a minimum of
15 jobs within the first three years. As noted above, PAT
and R&D subsidies are based on the number of jobs created.
In addition, the authorities have occasionally sought
commitments as part of the approval process for acquisitions
by foreign investors.

Nonetheless, foreign firms need the French government's
approval on a variety of regulatory issues, and in France,
officials generally have much wider discretion than their
U.S. counterparts. This can leave firms subject to
"unwritten" performance requirements, with regulatory
officials making it known that a firm's request would be
more favorably viewed if it increased employment, R&D, or
exports.

A6. Right to Private Ownership and Establishment

The French government maintains legal monopolies in the
following sectors: postal services (La Poste),national rail
transportation (SNCF),Parisian bus and metro services
(RATP),and tobacco manufacturing and distribution (Seita).
The electricity and gas Companies (EDF/GDF) no longer have
monopolies on production, distribution and sale of
electricity and gas. Market opening in Europe has surpassed
37 percent (by volume) of the electricity market and 70
percent of the gas market -- meaning that that proportion of
customers is free to choose another supplier, although few
have. In July 2004, the option to switch suppliers was
opened to all commercial customers. After a critical piece
of energy sector reform legislation passed that same month,
the first public sales of shares for EDF and GDF began in
2005, leading effectively to a partial privatization of the
two companies. However, the new law requires the GOF to
retain at least a 70 percent interest.

A7. Protection of Property Rights

France is a strong defender of intellectual property rights
and has highly developed protections for intellectual
property. Under the French system, patents and trademarks
protect industrial property, while literary/artistic
property is protected by copyrights. By virtue of the Paris
Convention and the Washington Treaty regarding industrial
property, U.S. Nationals have a "priority period" after
filing an application for an U.S. patent or trademark, in
which to file a corresponding application in France. This
period is twelve months for patents and six months for
trademarks. In July 2004, the French government, internet
access providers and authors and producers of music signed a
"Charter to fight piracy and develop legal offers of music
online." This charter allows access providers to address a
warning message to Net surfers and to remove subscription
rights of people condemned for hacking. In December 2005,
the lower house of Parliament, the National Assembly,
narrowly passed an amendment that, if enacted into law,
could authorize online peer-to-peer copying of works for
private use, but the Government promised a closer review in
2006 to ensure copyrights continue to be protected.

A8. Transparency of the Regulatory System

The French government has made considerable progress in
recent years improving the transparency and accessibility of
its regulatory system. Government Ministers, companies,
consumer organizations and trade associations may petition
the Unfair Competition Council to investigate anti-
competitive practices.

Of most concern to foreign companies has been standards
setting. With standards different from those in the U.S.,
rigorous testing and approval procedures must sometimes be
undertaken before goods can be sold in France, particularly
those that entail risk. When EU-wide standards do not
exist, specific French standards apply. The United States
and the EU have negotiated mutual recognition agreements
covering the testing and certification of certain specified
regulated products. Information about these agreements and
efforts to extend them can be found at the website of the
Trans-Atlantic Business Dialogue, [http://www.tabd.com/].
The National Institute of Standards and Technology,
[http://www.nist.gov/], is represented at the International
Bureau of Weights and Measures, [http://www.bipm.fr/],
located in Sevres, France, and may be of assistance to
firms.

Industry associations have an influential role in developing
both government policies and influencing self-regulatory
organizations. U.S. firms may find it useful to become
members of local industry groups. Experience has shown that
even "observer" status can offer U.S. firms an insight into
new investment opportunities and greater access to
government-sponsored projects, even if U.S. firms sometimes
feel they are not always given an adequate opportunity to
participate in the determination of regulations.

A9. Efficient Capital Markets and Portfolio Investment

Access to Capital and Capital Markets

France has an open financial market that gives firms easy
access to a variety of financial products in both French and
international markets. As markets expand, foreign and
domestic portfolio investment has become increasingly
important. France continues to modernize its marketplace,
introducing tax-advantaged retirement funds in 2004. Facing
the prospect of increasingly tough competition with other
European marketplaces following the introduction of the
Euro, French financial markets are continually updating and
adapting their products, procedures and services.

France is actively involved in the effort to create a system
of internationally accepted accounting standards (to learn
more, go to [http://www.iasb.org.uk/] or search the SEC's
website at [http://www.sec.gov/]. Most EU listed companies
will be required to use international accounting standards
from 2005. French market and banking regulators continue to
enhance and develop cooperation with their foreign
counterparts. French legal, regulatory and accounting
systems may not be as transparent as U.S. systems, but are
consistent with international norms.
Commercial banks offer all classic financing instruments,
including short, medium, and long-term loans, short-and
medium-term credit facilities, and secured and non-secured
overdrafts. Commercial banks also assist in public
offerings of shares and corporate debt, and mergers,
acquisitions and takeovers. Banks offer hedging services
against interest rate and currency fluctuations. France
also had 186 foreign banks with total assets accounting for
10% of total bank assets at the end of 2004, some with
sizable branch networks. Foreign companies have access to
all banking services. Although some subsidies are available
for home mortgages and small business financing, most loans
are provided at market rates.

Increasingly, firms in France are bypassing banks and going
directly to financial markets for their financing needs.
The center of the French market is the Euronext stock
exchange. Euronext N.V., a holding company incorporated
under Dutch law, was formed on 22 September 2000 when the
exchanges of Amsterdam, Brussels and Paris merged. The
Euronext group expanded at the beginning of 2002 with the
acquisition of LIFFE (London International Financial Futures
and Options Exchange) and the merger with the Portuguese
exchange BVLP (Bolsa de Valores de Lisboa e Porto). As of
December 2005, Euronext listed 1,259 companies (of which 300
are foreign excluding countries members of Euronext),with a
total capitalization of USD 2.3 billion. In February 2005,
Euronext Paris merged the three separate markets of the
Paris exchange, the cash market ("Marche au Comptant"),the
regulated market ("Second Marche") and the "Nouveau Marche"
(growth segment) on which new companies, especially smaller
ones with an emphasis on growth and technology, can raise
start-up capital. The new market list ("Eurolist") was
split in three segments based on the capitalization of
companies (150 million euros, 150 million to 1 billion
euros, and more than 1 billion euros). The changes are
aimed at improving liquidity and visibility of small- and
medium-sized companies. A financial futures market, the
"Marche a Terme des Instruments Financiers," commonly known
as the MATIF, trades standard contracts on interest rates,
short- and long-term bonds, stock market indices, and
commodities. It has established linkages with its German
and Swiss counterparts as well as with the Chicago
Mercantile Exchange. Options are traded on the "Marche des
Options Ngociables de Paris" (MONEP) exchange, operated by
Euronext. Finally, though not nearly as developed as in the
United States or the United Kingdom, venture capital markets
("Marche Libre" and "Marche de gre a gre") have become
increasingly important ways for start-up firms to raise
funds. In 2005, Euronext created a market, "Alternext," to
offer companies a new unregulated market (based on the legal
definition of the European investment services directive)
with more consumer protection than the "Marche Libre," which
will continue to operate.

Foreigners hold more than 40% of the capital of publicly
traded French companies. For a foreign company incorporated
in an OECD country to be listed on the Euronext stock
exchange, it must be sponsored by a French bank or broker.
It must also prepare a French language prospectus to get a
permit from the "Autorite des Marches Financiers" (AMF),the
new unified body that has taken up responsibilities of the
former Commissions des Operations de Bourse (COB)" (the
French equivalent to the SEC). The Council of State stated
in December 2001 that the "urgent measures for economic and
financial reform" law ("Mesures urgentes de reforme a
caractere economique et financiere MURCEF") was not
unconstitutional, authorizing foreign companies to provide
statements in English and a short summary in French. Since
July 1, 2005, France has applied the European 809-2004
regulation that details the content of prospectuses. AMF
has modified its general regulation on September 8, 2005,
taking into account the transposition of the November 4,
2003 EU directive on prospectus on securities offered to the
public or admitted to trading. Based on the December 13,
2005 2005-11 disposition, an application to the AMF must
include a summary in French or any other language commonly
used in financial issues that describes "essential
information related to the content and modalities of
operations" as well as to the "organization, financial
situation and development of the activity of the company".
Details may be found on the AMF web site [http://www.amf-
france.org], which merged with the COB web site
[http://www.cob.fr].
The sponsoring bank or broker is responsible for placing the
securities with investors when the securities are listed and
for acting as a market maker. More information is available
on the Paris Stock Exchange website,
[http://www.euronext.com].

Cross-Shareholding

An intricate network of cross-shareholdings among French
corporations has often been seen as a barrier to foreign
acquisition of French firms. Often, two French companies
will each own a significant share of the other. This system,
which was traditionally a means to help ensure state-control
of the economy, has weakened in recent years under the
pressure of the marketplace.

Mergers and Acquisitions

Although French laws regarding takeovers do not discriminate
against foreign investors, a hostile takeover in France by a
foreign investor could face public and even official
scrutiny. Provisions of the company takeover law are
designed to limit hostile takeovers of publicly traded
companies. For example, with the new regulation, passed by
the Parliament on December 15, 2005, stockholders are
required to notify company management and AMF when they have
decided to prepare a takeover. France extended its public
offering rules, requiring investors taking control of a
company listed on a French market ("the target") to make a
public offering on French and foreign subsidiaries having
shares listed on a regulated market of the European economic
space or an equivalent regulated by foreign laws if "the
target" holds more than one third of voting rights in these
companies and if companies constitute essential assets of
the target.

A10. Political Violence

Occasionally, anti-American sentiments, particularly by
those who see themselves as threatened by U.S. policies,
result in demonstrations against U.S. investments. The
recent massive demonstrations by anti-globalization
protesters at major international conferences and summits
around the world, which have resulted in the targeting of
U.S. firms and significant property damage, could be
replicated in France should there be an attractive
opportunity for such groups. That said, incidents targeting
U.S. investments are rare. France is one of the world's
leading democracies and a founding member of the EU; there
is little danger of insurrection, belligerent neighbors, or
widespread civil disturbances. Moreover, since the
terrorist attacks of September 11, 2001, there have been
relatively fewer anti-American demonstrations in France as
compared to prior years.

A11. Corruption

France has laws, regulations and penalties that effectively
combat acts of corruption committed in France. A 1993 law
established a Central Service for the Prevention of
Corruption under the aegis of the Ministry of Justice. The
French judiciary is responsible for prosecution, and is
active in doing so. There have been numerous investigations
and convictions of public officials and businessmen under
the anti-corruption statutes. Penalties for acts of
corruption vary according to the circumstances; they often
include fines and prison terms. At the 2003 trial of former
executives of the oil company Elf, the prosecution has
sought five to eight-year prison sentences as well as fines
for three of the main figures among the 37 defendants. The
criminal investigation into the activities of the then state-
owned oil company was launched in 1994 and is considered
France's biggest corruption investigation in recent history.

France ratified the OECD Anti-Bribery Convention and enacted
implementing legislation to enforce its provisions in 2000.
The OECD Anti-Bribery Conventions is enforced via amendments
to the Criminal code, which have been integrated into
Articles 435-3 and 435-4 of a new chapter on international
corruption (Chapter V, Title III, Book IV). Article 435-3
incriminates the offer or promise of a bribe, but not the
actual payment of a bribe, which is explicitly mentioned in
the convention. Furthermore, there is a difference in the
treatment of victims of bribery, depending on whether the
bribery is domestic, EU or foreign. In cases of bribery of
GOF/EU officials, any victim may initiate prosecution. In
cases involving the bribery of other foreign government
officials, on the other hand, criminal proceedings may be
initiated only by the public prosecutor on the basis of a
complaint from a Government official in the country where
the bribery took place. In other words, if the victim were
a U.S. company, it would not be able to initiate criminal
proceedings under French legislation. No case has yet been
brought before the French Justice system under the OECD Anti-
Bribery convention as of the end of 2005.

The OECD Anti-Bribery convention is further enforced via
amendments to the Tax Code and to the Code of Criminal
Procedure. Article 39-2 of the French Tax Code puts an end
to the tax deductibility of bribes as of the entry into
force in France of the Convention (September 29, 2000).
Finally, Article 706-1 of the amended Code of Criminal
Procedure provides that acts criminalized by the OECD
Convention will be prosecuted in the Economic and Financial
Unit of the Paris Court of Justice. More information about
France's implementation of the agreement can be found at the
OECD's Internet address, http://www.oecd.org/.

France has also begun ratification of the Council of
Europe's civil and criminal conventions on corruption. The
procedure should be completed during the first half of 2006.

There have been no specific complaints from U.S. firms of
unfair competition or investment obstacles due to corrupt
practices in France in recent years. More information on
the international fight against corruption can be found at
the Internet site of Transparency International,
www.Transparency.org, a private organization. According to
Transparency International's French Chapter, the sectors
most affected by corrupt practices tend to be public works
and the defense industry.


B. Bilateral Investment Agreements

1959 U.S.-France Convention on Establishment

U.S. investment in France is subject to the provisions of
the Convention on Establishment between the United States of
America and France, which was signed in 1959 and is still in
force. Some of the rights it provides to U.S. nationals and
companies include:

-- The right to be treated like domestic nationals in all
types of commercial activities including the right to
establish offices and acquire majority control of French
firms. (This right does not apply to firms involved in
communications, air transportation, water transportation,
banking, the exploitation of natural resources, certain
"professions," and the production of electricity) and in
obtaining and maintaining patent and trademarks;

-- The right to receive the best treatment accorded to
either domestic nationals and companies or third country
nationals and companies with respect to transferring funds
between France and the U.S.; and

-- The requirement that property may only be expropriated
for a public purpose and that payment must be just,
realizable, and prompt.

The treaty does not apply to the use or production of
fissionable materials, arms, or any materials used directly
or indirectly to supply military establishments. The treaty
does not prevent application of measures necessary to
protect essential security interests.

Bilateral Investment Treaties

Investments in France by other EU member states are governed
by the provisions of the Treaty of Rome and by Union Law.
France has also signed Bilateral Investment Treaties (BITs)
with the following 81 countries: Albania, Algeria,
Argentina, Armenia, Azerbaijan, Bangladesh, Bolivia,
Bulgaria, Chile, China, the Democratic Republic of the
Congo, Costa Rica, Croatia, Cuba, Czech Republic, Ecuador,
Egypt, El Salvador, Equatorial Guinea, Estonia, Ethiopia,
Georgia, Guatemala, Haiti, Hong Kong, Honduras, Hungary,
India, Indonesia, Iran, Israel, Jamaica, Jordan, Kazakhstan,
Korea (South),Kuwait, Kyrgyz Republic, Laos, Latvia,
Lebanon, Liberia, Lithuania, Macedonia, Malaysia, Malta,
Mauritius, Moldavia, Mexico, Mongolia, Morocco, Nepal,
Nicaragua, Nigeria, Oman, Pakistan, Panama, Paraguay, Peru,
Philippines, Poland, the Dominican Republic, Qatar, Romania,
Russia, Singapore, Slovakia, Slovenia, South Africa, Sri
Lanka, Sudan, Syria, Trinidad and Tobago, Tajikistan,
Tunisia, Turkmenistan, Ukraine, United Arab Emirates,
Uruguay, Uzbekistan, Vietnam, Yemen, and Yugoslavia (the
former Federal Republic).

Bilateral Investment Treaties signed with the following 11
countries have not yet been ratified: Bahrain, Bosnia,
Brazil, Byelorussia, Ghana, Libya, Madagascar, Mozambique,
Namibia, Uganda, Zambia and Zimbabwe.

French BITs generally cover the following:

-- Just and equitable treatment that is no less favorable
than that accorded to domestic investors or the most favored
investor from a third country;

-- Restrictions on expropriation of investments, and
requirements that, in the case of expropriation,
compensation be prompt and adequate;

-- Free transfers; and,

-- The ability to resolve investor-state disputes through
binding international arbitration.


C. OPIC and Other Investment Insurance Programs

Given France's high per capita income, investments in France
do not qualify for investment insurance or guarantees
offered by the Overseas Private Investment Corporation
(OPIC). Further information can be found at www.opic.gov.


D. Labor

France's private sector labor force is one of the country's
strongest points in attracting foreign investment, combining
high quality with relatively competitive unit-wage costs
compared with those of other industrialized countries.

The labor code sets minimum standards for working conditions
including the workweek, layoffs, overtime, vacation and
personal leave. Other labor standards are contained in
collective agreements, which are usually negotiated by
sector on a national or regional basis by the various trade
union federations and employers' associations. French
absenteeism is modest by European standards, and in the
private sector, peaceful labor relations generally prevail.

While the rate of unionization in France has steadily
declined to a little more than half that of the United
States, French labor law provides an extensive institutional
role for employee representatives and for organized labor.

-- In companies with more than 10 employees, employee
delegates are elected for a one-year term. They are
authorized to present individual or collective claims and
grievances relating to working conditions, to inform
government labor inspectors of any complaints under the
labor law, and to concur with management in any
reorganization of the workweek. Management is required to
meet with employee delegates at least monthly.

-- A company with more than 50 employees must have a joint
management/employee enterprise committee, to which employee
representatives are elected. The committee must be consulted
for all major corporate decisions, but has no veto. The
enterprise committee must be provided with the same
information that is made available to shareholders. It is
funded by the company at a rate equal to at least 0.2
percent of the firm's payroll, and uses this money to
finance social and cultural activities for the benefit of
employees.
-- Workers also hold most slots on occupational health and
safety committees, which are mandatory in medium and large
size companies. Labor tribunals (playing a role largely
equivalent to the NLRB in resolving labor disputes) are
comprised of equal numbers of union and employer
representatives. Appeals are possible to the level of the
"Cour de Cassation," one of France's high courts.

Due to a variety of macro and microeconomic factors,
including high payroll taxes, a high minimum wage, and rigid
labor laws, French businesses tend to use less labor-
intensive procedures and rely more on laborsaving technology
than businesses in other countries. This is one reason for
France's high unemployment rate.

While not rejecting outright the 35-hour workweek, the
government of former Prime Minister Jean-Pierre Raffarin (in
office from May 2002 to June 2005),made the law less rigid,
principally by loosening restrictions on overtime hours. By
allowing French employees to work longer overtime hours, the
Raffarin government engineered a potential return to a 39-
hour workweek.



E. Foreign Free Trade Zones/Ports and Competitiveness
Clusters

France is subject to all European Union free trade zone
regulations and arrangements. These allow member countries
to designate portions of their customs territory as free
trade zones and free warehouses. France has taken advantage
of these regulations in several specific instances. The
French Customs Service administers these zones and can
provide more details. Customs can be contacted at the
finance ministry web address: [http://www.douane.gouv.fr use
search to find information about "zones franches")].

In addition, the French government has renewed the tax
exemption program for five years, until December 31, 2007,
in the existing urban "enterprise zones" (Zones Franches
Urbaines),for 44 depressed or impoverished municipalities
in France or its overseas territories, added 41 new zones to
the list in 2004, and 15 new zones in 2005. Since January
2004, any zone benefited from tax exemptions on corporate
tax, payroll taxes, professional tax and real estate tax.
Related information is notably available at the City
Government web site [http://www.ville.gouv.fr].

More information on enterprise and investment zones is
available from various sources: [http://www.zones-
franches.org], [http://www.InvestinFrance.org]
[http://www.diact.gouv.fr], and [http://www.oseo.fr] for
assistance to small and medium sized companies.

The 67 competitiveness clusters created by the government in
July 2005 to reinforce innovation in France and fight
against relocation of enterprises abroad will benefit from
income and social tax exemptions. Clusters involved in
research and innovation will also benefit from financial
support from the state-owned investment bank Caisse des
Depots.


F. Foreign Investment Statistics

Foreign investment represents a significant percentage of
production in many sectors. Rapid growth in the new
technologies sector has given way to renewed growth in
traditional sectors: automobiles, metalworking, aerospace,
capital goods, and consultancy and services. France has
remained one of the main destinations of foreign direct
investment (FDI),although foreign investment in
industrialized countries has declined. Foreign investment
inflows remained significant, but decreased in 2004 by 48
percent to 1.2 percent of GDP (versus 2.7 percent in 2003)
due in part to the absence of large merger-acquisitions
initiated by foreign investors. Based on preliminary
information the U.S. remained one the largest sources of FDI
in France. Using Bank of France balance of payments data
based on the historical book value of investment, U.S. firms
accounted for 13 percent (versus 25% in previous years) of
the stock of foreign investment.

Using the book value instead of the market value of
investments tends to underestimate the value of U.S.
investments in France. This is because investments by U.S.
companies tend to be considerably older than other
countries' investments and because U.S. firms often finance
expansions and acquisitions on domestic French capital
markets or through subsidiaries in third countries. Thus,
much U.S. investment in France is not recorded in balance of
payments statistics, even though U.S. citizens ultimately
control it.

Correcting for these statistical biases, and including the
value of U.S. holdings of French stocks, the market value of
the stock of U.S. investment in France may be as much as
five times the USD 58.9 billion book value for 2004 reported
in U.S. Department of Commerce data
[http://www.bea.doc.gov/bea/di/home/directinv htm]. About
2,000 affiliates of U.S. firms are established in France.
Around 590,000 jobs result from U.S.-origin investments.

Today, foreign-controlled firms play a significant role in
France's economy: they account for 15 percent of capital
expenditures, 30 percent of exports, and 15 percent of
production.

An updated list of U.S. investors may be found on
[http://www.investinfrance.org/NorthAmerica/Y ourProject/Data
base/?l=en]

Lists of foreign investors by industry can be found in
local periodicals such as Expansion ("Les 1000 de
l'Expansion": [http://www.lexpansion.com/PID/7800.html]).
The Expansion link provides useful information on the first
1000 companies and financial institutions established in
France.


Stock by country of origin (Book value) (USD billions)

2002 2003 2004


EU (12),188 256
of which
Germany 45 58
Belgium 39 55
Italy 14 15
Netherlands 57 78

Other EU (15) 74 50
of which
UK 57 74
Sweden 4 6

North America, 47 76
of which
USA 48 62
Canada 1 5

Other Industrialized
countries 21 72
Japan 8 10
Switzerland 21 27

Other countries 16 20

Total 347 466 430

Total as percent of GDP 24.0 26.0 21.0
(Exchange rate:)
USD 1.00 equals Euro 1.06 0.88 0.80

Source: Bank of France

Stock by country of origin (Market value) (USD billions)

Total 509 705 852

Total as percent of GDP 35.2 39.2 41.6
(Exchange rate:)
USD 1.00 equals Euro 1.06 0.88 0.80

Stock by Industrial Sector of Destination (USD billions)

2002 2003

Holdings 117 164
Finance intermediation 52 71
Real estate 38 55
Retail trade 25 31
Chemical industry 19 25
Transportation equipment 9 11
Transport and Communications 9 11
Food and processed food 6 7
Metal Industry 5 5
Wood industry
- publication - printing 3 4
Mechanical industry 4 5
Oil refining 3 4
Other 57 73
Total 347 466
(Exchange rate:)
USD 1.00 equals Euro 1.06 0.88

Source: Bank of France

Flows by country of origin (Market value) (USD billions)

2002 2003 2004

EU (25) 38 31 23

EU (12) 21 26 17
of which
Germany 10 1 5
Belgium 1 10 5
Italy 0 0 1
Netherlands 0 4 -1

Other EU (15) 16 5 6
of which
UK 16 4 4
Denmark 0 0 2
Sweden 1 0 1

New EU members (1) 0 0 0

North America, 6 9 8
of which
USA 0 5 1
Canada 6 3 6

Other Industrialized
Countries 3 1 2
of which
Japan 3 1 0
Switzerland 0 1 2

Other countries 2 2 -11

Total 49 43 24

Total as percent of GDP 3.4 2.4 1.2
(Exchange rate:)
USD 1.00 equals Euro 1.06 0.88 0.80


Source: Bank of France
(1) Cyprus, Estonia, Hungary, Latvia, Lithuania, Malta,
Poland, Czechoslovakia, Slovakia, and Slovenia.


Stock by country of destination (Book value) (USD billions)

2002 2003 2004

EU (12) 213 267
of which
Germany 33 47
Belgium 80 80
Italy 18 24
Netherlands 43 64

Other EU (15) 50 37
Of which
UK 2 96
Sweden 5 6
North America 139 187
of which
USA 127 139
Canada 21 27

Other industrialized
countries 67 95
Japan 10 13
Switzerland 18 25


Other countries 55 70

Total 529 645 746

Total as percent of GDP 36.6 35.9 36.4
(Exchange rate:)
USD 1.00 equals Euro 1.06 0.88 0.80

Source: Bank of France

Stock by country of destination (Market value) (USD
billions)

Total 808 1,075 1,270

Total as a % of GDP 55.9 59.9 70.8

Stock by Industrial Sector Destination (USD billions)

2002 2003

Holdings 193 240
Finance intermediation 112 138
Retail trade 31 42
Transportation equipment 24 32
Transportation and
Communications 34 31
Electricity, natural gas,
and water 19 15

Other 104 129

Total 529 645
(Exchange rate:)
USD 1.00 equals Euro 1.06 0.88

Source: Bank of France

Flows by country of destination (Market value, USD billions)

2002 2003 2004

EU (25) 25 37 45

EU (12) 19 23 31
of which
Germany 5 6 8
Belgium 7 6 8
Italy 0 3 2
Netherlands 2 11 7

Other EU (15) 4 13 11
Of which
UK 4 12 10
Denmark 1 0 0
Sweden 1 1 1

New EU members (1) 1 1 3

North America 15 8 -1
of which
USA 16 6 -1
Canada 0 1 0

Other Industrialized
Countries 4 9 1
Japan 2 3 0
Switzerland 2 5 1

Other countries 6 0 4

Total 51 53 48

Total as a percent of GDP 3.5 3.0 2.3
(Exchange rate:)
USD 1.00 equals Euro 1.06 0.88 0.80

Source: Bank of France
(1) Cyprus, Estonia, Hungary, Latvia, Lithuania, Malta,
Poland, Czechoslovakia, Slovakia, and Slovenia.

Stapleton