FRANCE: SCENESETTER FOR SECRETARY PETERS AND

UNCLAS PARIS 004617 SIPDIS SENSITIVE SIPDIS FOR SECRETARY PETERS AND DELEGATION E.O. 12958: N/A TAGS: ECON PREL FR SUBJECT: FRANCE: SCENESETTER FOR SECRETARY PETERS AND DELEGATION ¶1. (SBU) Paris extends a warm welcome to you and your delegation. Your visit comes close to six months into President Nicolas Sarkozy's five-year term, a period in which the strong U.S.-French bilateral relationship has been reinvigorated. Sarkozy's personal initiative is already visible in new approaches to politics and foreign policy, the economy, and the environment. There are clear signs that environmental concerns are causing France to begin to rethink transportation and infrastructure policy. France will continue to build on a strong record of accomplishment in financing and building roads and bridges and developing cutting-edge technology such as its high-speed train system. Politics -------------- ¶2. (SBU) Through effective use of the media and by co-opting leading opposition figures into his government, Sarkozy has established himself as the dominant figure on the domestic political scene. He has been assertive in pushing an ambitious program of reform aimed at revitalizing the country and liberating its economic potential. While still enjoying substantial popular support (above 60 percent in most polls), a difficult international economic environment and France's budgetary constraints are restricting his room to maneuver. A week of nationwide strikes by transportation workers and civil servants in mid-November provided the first political challenge to his reform program, which he appears to have successfully met for the time being. ¶3. (SBU) In foreign policy Sarkozy is intent on reasserting French leadership in Europe and in making his mark on the international scene. He has moved to improve his relations with the U.S., breaking with Chirac's view that saw France as the natural leader of opponents of U.S. "unilateralism." We have seen new warmth in public expressions of friendship for the U.S. as well as dramatic shifts in French policy on Iraq and NATO, and a toughened approach toward Iran and Russia. Despite convergence with the U.S. on these key issues, Sarkozy has repeatedly emphasized that being "allies" does not mean across-the-board and automatic "alignment" with U.S. positions. He has not hesitated to identify specific areas of disagreement with the U.S., including admission of Turkey into the EU, climate change and GMOs. Sarkozy's Economic Agenda -------------- ¶4. (SBU) President Sarkozy wasted little time in moving forward with a broad economic policy reform agenda. Labor market reform, tax changes that encourage overtime work beyond the 35 hour work week, mortgage deductibility to encourage home ownership, further pension reform, smaller government, the provision of minimum services during strikes and possible changes to France's collective bargaining system are highlights of the policy initiatives that are either underway, or in the offing. The outcome of this process could well determine whether the United States has a newly confident, dynamic, forward-looking economic partner in France. ¶5. (U) Trade and investment between our countries is significant. On average over one billion dollars in commercial transactions take place between France and the U.S. every day, with the U.S being France's third ranked supplier and its fifth largest customer (France ranks as the U.S.' eighth trading partner for total goods (imports and exports). There are approximately 2,300 French subsidiaries in the U.S. that provide more than 481,000 jobs and that generate an estimated $178 billion in turnover. The U.S. is the top destination for French investments worldwide. Concurrently, the US is the largest foreign investor in France, employing over 600,000 French citizens with aggregate investment estimated at $65.9 billion in 2006. Environment -------------- ¶6. (SBU) The environment has become a signature issue for the Sarkozy government, which created an environmental "super-ministry" incorporating energy, infrastructure, and transportation. It is headed by the third-highest ranking Minister in the French Government (Jean-Louis Borloo),and includes a "State Secretary" (Dominique Bussereau) who is responsible for all transportation issues. In its first major undertaking, the new ministry recently concluded broad-based national environmental consultations (the "Grenelle de l'Environment.") At its conclusion, Sarkozy underlined his desire to rethink transportation policy to meet growing environmental challenges, including climate change. Transportation and Infrastructure -------------- ¶7. (U) Building on an earlier announcement of the end of major new road construction projects, Sarkozy has promised to focus on the key problem of traffic congestion in cities by directing resources in the future away from road transport. He vowed to build 1500 kilometers of bus corridors, bike paths, and streetcar lines in the Paris region, and to construct 2000 kilometers of new high-speed rail lines in France. Dedicated freight rail lines and investment in sea and river port facilities would mean 3 million fewer north-south truck passages by 2020, he said. ¶8. (U) These proposals come on the heels of strong investment in French transportation infrastructure in recent years ( 15 percent in 2007),with about 45 percent of the total directed toward roads. Highlights of recent budgets include continuing expansion of France's impressive high-speed rail network (TGV),and the development of multi-modal transport through rail and sea conveyance of trucks. The latest TGV line linking Paris to Strasbourg in Eastern France was put into service in February, and work is underway on lines in Eastern and Southern France, including one that will eventually put Paris 5 1/2 hours from Barcelona. The French have been particularly encouraged by international interest in TGV technology (including a recent sale to Morocco) and visits by a number of US delegations considering the TGV for possible use in the US (particularly from California). ¶9. (U) Key parts of transportation infrastructure in France also have been reorganized through partial privatization or by decentralization to regional or local governments. The French national railways (SNCF) was separated as an operating company from the underlying infrastructure in 1997. State holdings in toll-roads were privatized in 2006. Some local airports and ports will be ceded to local governments, just as a large chuck of secondary roadways passed from national to regional control in 2006. Labor unions and some localities have questioned this policy, raising concerns that the French state is abandoning its historical commitment to providing transportation as a public service. ¶10. (SBU) France began to introduce new approaches to financing its transportation infrastructure after 1993, due to European Community competition concerns with the system of cross-subsidization that was originally used to build and extend the French highway system. Each public-private partnership project under the current system must be economically viable in its own right, with public subsidies clearly identified if needed. Concessionaires design, finance, build and operate state-owned highways and bridges, in exchange for a long-term grant of toll revenues, subject to periodic review. France will also begin experimenting soon with a new form of "partnership contract" in which the state will pay concessionaires directly over a 20-30 year period. Other Transportation Issues -------------- ¶11. (SBU) Several other transportation-related issues may be on the minds of French officials you will meet. The GOF was supportive of the US-EU Open Skies agreement, but continues to hope for further opening of US airlines to foreign investment. They would also like to see a speedy and favorable decision on Skyteam's pending application for anti-trust immunity. We have encountered many expressions of concern about new requirements for 100 percent scanning of US-bound maritime containers since the passage of the 9/11 act in September. And finally, there is considerable interest in the status of the European Aviation Defense and Space Company's (EADS) bid to sell refueling tankers in partnership with Northrup-Grumman to the U.S. Air Force. Since much of the production would take place in the US, this would provide a politically palatable way for the company to move production offshore in order to counteract the increased value of the Euro. Your visit -------------- ¶12. (SBU) State Secretary for Transportation Dominique Bussereau is expected to brief you on the recent reorganization of his ministry, the priorities of the Sarkozy administration in transport and infrastructure planning and financing, and to discuss how France is approaching the issue of traffic congestion. A preliminary meeting with the Transportation's head of traffic management for the Paris region should provide an opportunity to discuss the issue of congestion in greater detail. The American Chamber of Commerce will host an informal discussion with infrastructure companies over lunch, and officials from Vinci will discuss the company's experience with infrastructure development, tolls and concessions and parking in a separate meeting. A presentation and tour of the A86 tunnel to the west of Paris will conclude your program. Please visit Paris' Classified Website at: http://www.state.sgov.gov/p/eur/paris/index.c fm STAPLETON