International Spectator

The International Spectator

Volume XXXIII No. 1 (January-March 1998)

 

French Foreign Economic Policy
By Pascal Lorot

 

As French President Jacques Chirac has reminded us, France is now the fourth economic power in the world, the fourth largest exporter of goods, the second largest exporter of services and the third international investor. In addition, French foreign trade surpluses have been growing regularly since 1992 and reached a new record of 122 billion francs in 1996. In contrast to these good results, however, growth has continued to stagnate (1.2 percent in 1996) while unemployment figures are rising (12 percent in February 1997). Predictions are that the French trade surplus could just as well double as disappear in coming years.

In the new climate of intensified economic competition, good results in foreign trade, instead of generating the satisfaction of public authorities, have led the latter to wonder about France’s competitiveness, its ability to attract foreign capital, the appropriateness of government export support mechanisms, and the poor contribution of small- and medium-sized enterprise (SME) to these good results. All bodies concerned are now involved in a process of redefinition and rationalisation of French foreign economic policy (FEP). This new dynamism is greatly supported, if not inspired, by Jacques Chirac, the first President of the Republic to consider economics an integral part of good diplomacy and intent upon becoming the advocate of the richness and assets of the French economy. This attitude meets the expectations of many businessmen, who had complained in recent years that they were not being sufficiently supported by public authorities in their export endeavours. This daily struggle for export competitiveness is progressively becoming the concern of all French people through the current reform of the French FEP and the diffusion of the concept of “economic intelligence ”.

 

Main Features of the French FEP System

The French FEP is principally defined by the government and implemented by the civil service and, in particular, the Office for Foreign Economic Relations (Direction des Relations Économiques Extérieures—DREE), a department of the Economy and Finance Ministry. The National Assembly and the Senate have only a consultative role in matters of FEP, especially during debate of the finance bill and determination of the foreign trade budget. They also play a role in putting forward proposals and informing the public and the government by means of reports on special subjects drafted on the request of the prime minister. The respective missions of the Foreign Office, Foreign Trade Department, and Economy and Finance Ministry in matters of FEP are not defined with precision. It is however the DREE which takes most decisions.

Aware of the fact that France’s competitiveness will depend increasingly on its capacity to integrate in world markets, the authorities chose three guidelines at the beginning of the 1990s to shape French FEP:

Increasing French “attractiveness” for international investments

In order to increase the attractiveness of France for foreign investments and the global competitiveness of the French economy, the General Planning Commission (Commissariat Général du Plan—CGP) created a think tank at the beginning of the 1990s to study the consequences of foreign investments in France. 1   In spite of the risks clearly outlined by the report (destabilisation of national industry, distortion of competition to the detriment of French firms, import of components from the countries of origin, loss of technical independence, etc.), the potential advantages for the French economy of foreign investment (contribution of capital and know-how, job creation, etc.) were judged sufficient to justify a policy of opening. The large deficit in France’s direct investment exchanges with foreign countries (the input/output ratio rose to an average of 2 between 1986 and 1992) also constituted an additional incentive for this policy. After 1992, the authorities confirmed their choice of a policy of opening and took various steps to improve the attractiveness of French territory.

Removal of international investment controls

Still relatively restrictive in the mid-1980s, foreign investment legislation was progressively simplified to become, at the beginning of the 1990s, one of the most liberal in the industrialised world. Since January 1992, investors from the European Community are exempted from any declaration, and a fortiori, from any previous authorisation. Extra-Community investors are still requested to fill out a prior declaration, and must obtain a special authorisation only if the amount of the operation is over 50 million francs. In this last instance, the authorisation is deemed tacitly obtained if there is no response from the competent office within a month. Thus, French legislation is now comparable to that of other members of the Organisation for European Cooperation and Development (OECD).

Development of financial incentives for foreign firms

In concomitance with this deregulation, increasing attention was given to developing incentives for the establishment of foreign firms. Granted in a discretionary way by national authorities, in respect of the rules negotiated with the European Community, these incentives can take the form of endowment capital, low interest rate loans, or capital sharing. They can be completed by assistance for research, training, or job creation. There are also some fiscal incentives (accelerated depreciation, reduced corporation taxes and rates, etc.) for firms setting up in underprivileged regions.

Reinforcement of promotion and image

Often in contrast with the real advantages that France has to offer for attracting foreign capital, the sometimes distorted image that one gets of France from abroad troubled authorities. To remedy this problem, a special position was created in 1992: an Ambassador at Large, Special Representative of France for international investment. Since his appointment, Jean-Daniel Tordjman, helped by the Delegation for international investments (Délégation aux investissements internationaux—DII), which he manages at the Ministry of Economy and Finance, has endeavoured to bring in a new style in relations with foreign investors. Working in close cooperation with the 8000 foreign firms established in France, the DII helps them solve their problems and develop their activities in France. The DII has also begun to mobilise French and foreign executives around the world to promote a favourable image of France to potential investors.

Reorganization of the DATAR network

These measures were accompanied by a total reorganisation of the DATAR (Délégation à l’Amênagement du Territoire et à l’Action Rêgionale) network, which works in close cooperation with the DII. In 1992, the DATAR created the Invest in France Network. 2   Members of this association include:

Thanks to these measures, France has become one of the most attractive countries for foreign investment. The figures speak for themselves: from 1980 to 1992, France’s share of the world total for foreign direct investment climbed from under 4 percent to 14.5 percent. 3   Between 1980 and 1995, total direct investment rose nearly sevenfold, soaring from US$22 billion to $150 billion. 4   Non-French companies are a growing presence in France, accounting for 24 percent of employment in the manufacturing industry, 30 percent of investment, 29 percent of production and 33 percent of exports. Altogether, some two million employees work in 8,000 subsidiaries of international corporations. 5

Export support mechanisms

In France, export support mechanisms involve a multitude of bodies. About 3,000 civil servants help French firms export. Some are government bodies (DREE, PEE and DRCE), while others have different legal status but are generally under the supervision of the DREE.

Office for Foreign Economic Relations

As already stated, the DREE is a department of the Economy and Finance Ministry, but it is also at disposal of the Foreign Trade Ministry for the exercise of its responsibilities. The DREE defines and implements the French FEP and is essentially charged with two missions: supervising and coordinating the actions of the other agencies in charge of export supports; following-up on some public procedures aimed at helping French and foreign firms; taking part in economic and commercial international negotiations and working out and implementing economic and financial international agreements. It supervises the activities of the DII, a department of the Economy and Finance Ministry.

Economic Expansion Units

Established in 118 countries, the 165 Economic Expansion Units (Postes d’Expansion Economique—PEE) make up the public network in charge of supporting international trade abroad. Managed by a commercial adviser of the DREE, and composed of sectoral experts, they inform and help French enterprises in market research.

Regional Offices for Foreign Trade

Under the authority of the regional prefects, the Regional Offices for Foreign Trade (Directions Régionales du Commerce Extérieur—DRCE) are the regional relays of the DREE. They have a triple role of information, animation and coordination of the different public actors in charge of international development. They are also responsible for the implementation of the“State-region planning contracts” (Contrats de Plan Etat-Région—CPER) which allow the SMEs with little export experience to profit from various kinds of support (help with recruitment of export executives, consulting services, assistance in setting up abroad). The amount of aid is relatively low (about 95 million francs every year), but its effectiveness is high. It also has the merit of being devoted specifically to small firms; since 1995, it has been granted in more than half the cases to enterprises with less than 25 employees.

The Agency for Technical, Industrial and Economic Cooperation

Supervised by the DREE, the Agency for Technical, Industrial and Economic Cooperation (Agence pour la coopération technique, industrielle et économique—ACTIM) is in charge of promoting French technology and know-how among foreign firms, especially by means of technical and industrial cooperation missions. It organises visits to France for foreign firms and disseminates information on French technical innovations thanks to its network of 11 news agencies in Europe, NAFTA countries, the Middle East and Asia. It is particularly active in the sectors of telecommunications, environment, transport, and agribusiness. Its programmes are directed mainly at Asia (42 percent of actions), but the number of operations in Latin America is growing steadily (21 percent in 1996 as compared to 16 percent in 1995).

French Committee for Economic Initiatives Abroad

Supervised by the DREE, the French Committee for Economic Initiatives Abroad (Comité français des manifestations économiques à l’étranger—CFME) helps French firms promote their products on foreign markets, especially by organising their participation in fairs and exhibitions abroad. In 1996, the CFME organised four big exhibitions, in Istanbul, Taipei, Sao Paulo and Bangkok. Since 1992, it has reoriented its actions towards the emerging countries (75 percent of operations), ranking as the most active country in Asia. On 6 January 1997, a new association was created which regrouped ACTIM and CFME in order to take advantage of the synergies between the two bodies and to offer better support to exporting firms.

French Centre for Foreign Trade

Supervised by the DREE, the French Centre for Foreign Trade (Centre français du commerce extérieur—CFCE) is a centre of information on foreign markets. It responds to the particular needs of the firms and tries to encourage them to know the foreign markets better. Working in close cooperation with the PEE and the DRCE, the CFCE works out a programme of actions in the framework of the orientations defined by the authorities. The CFCE essentially provides three types of services: information to French firms on foreign opportunities: seminars, documentation; advisory services; promotion of French firms and French products (organising visits by foreign decision makers).

Cooperation with the military service abroad

Created 20 years ago, Cooperation with Military Service Abroad (Coopérants du service national à l’étranger—CSNE) offers conscripts the possibility of doing their military service abroad in a subsidiary of a French firm. The possibility was kept confidential for a long time, and only concerned 228 conscripts in 1983, but that number had risen to 2978 in 1995. Because of this success, the number of CSNE should grow substantially in the coming years.

France-Enterprise Export Partnership

In May 1996, about 50 large French companies regrouped themselves in the France-Enterprise Export Partnership (Partenariat-France-Entreprises pour l’exportation) in order to develop a new form of helping the SMEs to export called“portage”. 6   This technique involves offering the SME reception, information and consulting services to help it conquer new foreign markets.

French Foreign Trade Insurance Company

With its 22 regional agencies, the (Compagnie Française d’Assurance pour le Commerce Extérieur—COFACE) offers insurance services at all stages of development of firms abroad, from planning to full implementation. It compensates the firms in case of failure of a commercial undertaking abroad (Assurance-Foire), indemnifies them for lack of success in prospecting actions abroad (Assurance-Prospection)and against risks of non-payment (Assurance Crédit Global commercial-politique), exchange risks (TOPCIME) and transport risks.

French Foreign Trade Bank

Privatized in 1995, the (Banque Française pour le Commerce Extérieur—BFCE) carries out its activity on the state’s behalf under the supervision of the Direction of the Treasury. In this regard, it contributes to public financial support to exports in that it is the manager of stabilisation mechanisms. It actually provides for the stabilisation of interest rates and credits. In the framework of official development aid, the BFCE also participates in the establishing financial arrangements, which consist of grants or soft loans to developing countries, bound to the purchase of French goods and services.

Support mechanisms to French investments abroad

To complement the export support mechanisms, two mechanisms have been created to help establish French firms abroad.

Interministerial Committee for the Development of Exports

The Interministerial Committee for the Development of Exports (Comité interministériel pour le développement des exportations—CODEX 7 ) assists the international development of SMEs by helping them open subsidiaries abroad. Aid includes concession of zero interest loans, repayable five years later that can represent from 20 to 25 percent of the investment made. This assistance is devoted to SMEs with a turnover of less than 500 million francs and whose subsidiaries abroad will generate an increase in French exports. It is mainly directed at countries in Asia (more than 40 percent of the total), America, Central Europe and South Africa.

“Article 39 of the General Tax Code”

The procedure set down in“Article 39 of the General Tax Code” (“ Article 39 octies du code général des impôts” 8 ) constitutes another aid to French firms setting up abroad in that it offers them the possibility of deferring certain taxes for five years. The operation is meant to generate supplementary exports. It applies to all countries outside of the European Union.

 

Evaluation of the Results and Effectiveness of the FEP

While the French support mechanisms to internationalisation seem to be relatively complete, and the internationalisation of the French economy is undeniably improving (with the success of the“attractiveness” policy and the record trade balance surpluses), there are nevertheless many reasons to wonder about the effectiveness of French FEP. The foreign trade surplus masks numerous weaknesses, the export support mechanisms require changes and the“attractiveness” policy generates a number of contradictions.

An unrealistic foreign trade surplus

Current foreign trade results are satisfactory; nevertheless, there are still some troublesome weaknesses (loss of market shares, low participation of SMEs in national exports, insufficient exports towards emerging countries, etc.). There is also an important problem of statistical reliability, which makes the very credibility of the foreign trade results suspect.

Record balance of trade surplus levels

In spite of the record levels of the balance of trade surpluses of these last years (which soared from -50bn francs in 1990 to 122bn francs in 1996) France’s share of the world market is decreasing (5.6 percent in 1996 against 5.8 percent in 1995, while that of its principal partners is increasing: for example, Italy’s world market share rose from 4.6 percent in 1995 to 4.9 percent in 1996. 9

Another worrying phenomenon is the deterioration of France’s trade with the United States, Japan, and the emerging countries of Asia. In 1996, the United States became the country with which France has the largest trade deficit with 23 billion francs, preceding Japan (20 billion francs). In addition, those countries’ export performances are superior to that of France. These results are structural, reflecting the traditional importance that the US and Japan give to their exports in terms of assistance and grants. Moreover one should note that weakness in French internal demand accounts for a large part of the foreign trade surplus. The reduction in it, especially as concerns firms’ investments, is reflected in a drop in imports, the volume of which fell from 10.4 percent in 1994 to 3 percent in 1995.

 

World Exports (% per country)

Source: OECD, 1997.

A rapid sectoral analysis of France’s foreign trade balance shows that its good performance lies mainly in two sectors: capital goods and agribusiness. For five years, the civil industrial balance of France improved considerably: from a deficit of 49 billion francs in 1991 to a surplus of 53.7 billion francs in 1995 (via 37.9 billion francs in 1994). Within this sector, the most impressive improvement was in capital goods, with the 1990 deficit of 30 billion francs turning into a surplus of 58 billion francs in 1995. The aeronautical industry also contributed positively to this balance with 45 billion francs in 1995, in particular thanks to the Airbus success. Agribusiness’ traditional surplus continues to improve. Five products from this sector rank among the first ten in France’s surplus: soft wheat, wine, corn, brandy, and cheese.

The other main developments concern improvements in numerous high-tech sectors, in which the poorly qualified job content is low. Such specialisation is encouraging, as France cannot compete with developing countries on low value-added products.

Nevertheless, it must be remembered that French supply, present in all sectors, rarely achieves the critical size to allow firms to endow themselves with the instruments for analysis and assessment needed for commercial prospecting on foreign markets. Export markets are thus chosen without a real strategy and export products are not successful because there is no market for them (for example, perfumes in the US) or because they are in direct competition with local products (wines in the US and Australia). Therefore, it would be desirable if the public agencies for export support could help French firms more effectively in choosing developing markets for their exports.

Furthermore, the French export structure predominantly involves large companies. In 1996 as well as in 1995, the 250 largest exporting firms accounted for half of French exports, whereas the first 2000 accounted for three-quarters and the first 5000 for more than 90 percent of sales abroad. And even if the internationalisation of SMEs has improved appreciably in these last years, the real contribution of SME to total French exports does not exceed 29 percent. These figures are all the more worrying in that France’s major competitors do better: the contribution of SME to German exports reaches 32.4 percent, 10   whereas in Italy 60 percent of exports are realised by companies employing less than 100 people. 11

The same phenomenon can be found for French investments abroad. The last survey of the DREE shows the small part played by French SME as a percentage of subsidiaries or permanent structures abroad (15 percent of the total), of workforce employed (5 percent) and of fixed capital.

Monetary disorders have also had sectoral consequences. While a fall in the dollar permits France to profit from better prices for its imports and to reduce its energy bill, on the other hand, it has negative effects on the export level. These effects can be noticed not only in trade with the United States, but also with all the countries whose currencies are bound to the dollar (Canada, Mexico, Latin America, and Asia’s emerging countries).

Some sectors are more directly concerned by this problem. Actually, the underevaluation of the dollar penalises above all the sectors of data-processing, aeronautics and arms, in which French products are in direct competition with American ones, but it also reduces the price-competitiveness of French products in such sectors as textiles, furniture and shoes, because of the importance of the competition of Asian countries, whose currencies are bound to the dollar.

Competitive devaluations practised within the European Community have also affected France’s exports. The automobile industry showed good resistance to the devaluations of the other European currencies during the first part of 1995; yet, the competition of the countries whose currencies depreciated (Italy, Spain, United Kingdom) has been very strong in other sectors such as textiles and shoes, in which France has been in great difficulty for many years. France’s market share has fallen in Italy (from 14.2 percent to 10.8 percent for textiles and from 6.8 percent to 5 percent for shoes) and in the United Kingdom (from 4.1 to 3 percent and from 3.9 to 3.5 percent in the same sectors) in two years, whereas imports have grown. The sectors of wood-paper, machine-tools and toys have also suffered from unfavourable developments resulting from currency devaluations.

Old markets still dominate

Geographic analysis of France’s trade reveals that exports are largely directed towards industrialised countries: 70 percent of exports go to OECD countries and 64 percent European Union countries. These results show the success of an export reorientation strategy towards industrialised countries undertaken in the 1980s as a consequence of the decrease in the solvency of Third World countries with the debt crisis. If there is no need to slacken efforts in this direction, however, the French presence on the markets of emerging countries is insufficient. First, French direct investments in emerging countries are much lower than those of the UK and the US, Germany and Italy in the same regions. This is notably the case in Eastern and Central Europe where France’s share of foreign direct investments is two to tree times lower than those of the US or Germany.

In other respects, France’s market shares have shrunk in both Latin America (from 3.9 to 3.7 percent between 1985 and 1996) and Asia (from 2.2 to 2 percent between 1986 and 1996), whereas those of Italy, for example, have grown remarkably: from 2.3 to 3.5 percent between 1985 and 1996 in Latin America and from 1.5 to 2 percent in Asian countries in the same period. In Eastern and Central Europe, France’s market share is also much lower than that of Germany: in Russia, for example, France holds only a 2.3 percent share of the market while Germany holds 14.2 percent.

Last but not least, the importance of the emerging countries in French trade is the lowest in the G-7 countries. In 1995, the share of exports destined for emerging countries reached 47 percent in Japan, 35 percent in the United States, 19 percent in Germany, but barely 11 percent in France. 12   In spite of some progress, France’s performance remains well behind those of other European partners as well.

Unreliable statistical data

In a report to the Finance Commission on the 1997 Finance Bill, Deputy Olivier Dassault pointed out that the Overseas Departments and Territories (Départments et Territoires d’Outer-Mer—DOM-TOM) have always been accounted in the balance of trade as though they were not part of the national territory. 13   The trade balance integrated the traffic of goods between the capital and the DOM-TOM (which were thus registered as imports or exports) but excluded the flows from these departments to the rest of the world. According to Dassault, this method of calculation lay at the root of an artificial amelioration of foreign trade results by more than 40 billion francs.

In order to insure the coherence of statistical data, the French government decided that the overseas departments would be integrated, from the year 1997, in the territorial field of the trade balance. But the debate on the opportunity of integrating the TOM is still outstanding between the Assemblies and the government, given the financial and fiscal autonomy of the DOM.

The tax evasion presumptions that carry weight in the new intra-Community value-added tax (VAT) system also make the reliability of the statistical data suspect. This subject has been brought up many times in the National Assembly and the Senate. As a result, several surveys have been performed, with contradictory outcomes. 14   Nevertheless, there may be a receipt absence of about 10 to 25 billion francs; but 10 billion francs of VAT receipts means 50 billion francs in goods. Although the relevancy of this question is above all budgetary and economic, it has important repercussions on the reliability of foreign trade statistics. According to Dassault, VAT evasion contributes to an unrealistic foreign trade surplus, which is particularly deleterious because the government bases its FEP decisions on it. It thus seems absolutely necessary to strengthen the fight against tax evasion.

The main weaknesses of French export support mechanisms

The foreign trade budget

The first difficulty encountered in evaluating French export support mechanisms is finding out the exact amounts allocated. Actually a real foreign trade budget does not exist. 15   The credits which make up this part of the budget can be found under three different budgetary headings: the resources devoted to financial services, communal charges and special Treasury accounts.

This situation makes it difficult to evaluate the credits devoted to foreign trade properly. Depending on the field in question—and it is sometimes rather difficult to distinguish what belongs to official development aid or to export support—the financial resources may vary considerably. An exact evaluation of this amount, however, would be particularly useful, for example, to compare it to the amounts devoted to foreign trade in the budgets of France’s main partners.

In any case, the budget for“economic expansion”, which is a part of the budget of financial services, amounts to 970 million francs for 1997, a drop of 3 percent from 1996. Since 1993, the“economic expansion” budget has been the one which, of all French administration budgets, has contributed the most to the efforts to reduce the deficit.

Indeed, the 1997 budget contained a 1.3 percent reduction in the staff budget (in 1997, the DREE had to accept a new shortage of manpower with the suppression of 27 jobs, after the loss of 168 jobs between 1993 and 1996, that is to say 7.3 percent of its staff); a decrease in operating credits of 5.4 percent; an adjustment of the CFCE, ACTIM and CFME endowments; and a drop in aid to big firm contracts.

Equally important as the inadequacy of the public bodies is the quasi-absence of the private sector. Unlike Japan or Germany, France does not have a structured network of international trade associations. Moreover, banks are very hesitant to accompany enterprises on the international markets; they often favour the big companies and remain excessively prudent as far as SMEs are concerned. The insufficiency of the offer of the private sector thus constitutes a real handicap for French exporting firms.

Inadequate support mechanisms

Informing the firms is the essential function of export support. The present French system seems to be rather well structured, bringing together “information collectors” (the PEE which compile, analyse and produce information), an “information centre” (the CFCE which regroups the data, notably those of the PEE (which process and diffuse them) and some “proximity diffusers” (professional organisations, Chambers of Commerce and Industry, and Regional Centres of International Documentation (Centre régionaux de documentation internationale—CRDI). Yet this organisation also has its shortcomings: the CFCE is not efficient enough in the diffusion of surveys of the PEE, which are thus encouraged to contact the firms themselves; and at the same time, the CFCE is too dependent on the PEE. With regard to the latter, it would be interesting for the CFCE to have access, for example, to the market studies carried out by the French Chambers of Commerce and Industry Abroad (Chambre de Commerce et d’Industrie Française à l’Étranger—CCIFE).

To these problems of information collection and diffusion must be added the ignorance on the part of the public bodes of the potential exporters and of French supply. According to Brigitte de Gastines, in charge of an evaluation mission of the information offered by public bodies on the request of the prime minister, “the CFCE and the Chambre de Commerce et d’Industrie (CCI) often neglect their role of spotting potential exporting firms and giving first advice”. 16   In fact, the reputation of the support mechanisms to international development is not very good, especially according to the SMEs. The firms complain that there are too many contributors; not enough coordination between the different bodies which are sometimes rivals; a lack of quality management of their activities and a general lack of professionalism; problems of readability in the invoicing of services, which moreover are redundant among the various bodies, 17   and last but not least, ignorance of an enterpreneurial culture.

This obvious lack of coordination among the public bodies on national territory is aggravated by the excessive number of initiatives undertaken by them in their search for foreign partners. The growing number of French delegations going abroad—at the ministerial, regional, local and municipality level—constitutes a real problem because they neutralise each other and are sometimes left without valuable interlocutors.

For example, although the CFME is clearly responsible for organising the participation of French firms in fairs and exhibitions abroad, it is faced with competition from local and regional initiatives. There are also frequent conflicts of competence between the PEE and the CCIFE.

Weak decision-making mechanisms

In addition to the difficulties in evaluating the amount of grants devoted to French support mechanisms, to the insufficiency of the global budget and to the flaws in information management, there is a general lack of coordination among the different actors of the French system. The lack of transparency and the shortcomings in the dissemination of information among the ministries and within the civil service is the principal reason for the slow improvement in French FEP.

Contradictions in the “attractiveness” policies

The descriptions of the different actors in the “attractiveness” policies reveal the extreme diversity of the bodies involved: they can be public or private, have different legal status (associations, civil services, mixed companies and work at different geographic levels (national, regional, local or municipal). Coordination is even more difficult because they have heterogeneous—sometimes even contradictory—aims: private profit, regional development, improvement of the balance trade. This situation is complicated further by the existence, in the very heart of the public sector, of two different, potentially conflicting, approaches: the former is relevant to national economic diplomacy, the latter to the regional policy of territorial development and planning.

The national policies of “attractiveness” are therefore subject to permanent coordination difficulties, each of the partners having good reasons either to refuse to cooperate with the others or to demand a special role in coordination that the others will soon dispute. Most of the difficulties in fact come from tensions and coordination problems within the public sector, while the private sector adapts much more readily.

In any case, local actors and SMEs have in recent years voiced criticism of the perverse effects of attractiveness policies: they are sometimes favourable to large foreign companies to the detriment of local SMEs, they concentrate aid on a “politically sensitive” region to the detriment of other places, they lead to rival bodies sometimes outbidding each other on grants.

It is thus urgent to determine the moment when fiscal exemptions and financial aids become excessive and lead to competition distortions between firms and territories. It is particularly necessary to define clearly the respective competencies of the different bodies involved in the attractiveness policies.

 

Reform Proposals

Developing a“spirit of conquest”

With East-West confrontation having long concealed the economic rivalries between industrialised states and focused the attention of public authorities on geostrategic problems, its end has led to a new type of organisation of international relations based upon geoeconomic competition. The attitude of the United States, with the creation of the advocacy center, the Helms-Burton law and the Amato law, manifests that new reality of which French public authorities are becoming progressively aware. 18   In other respects, the increased competitive pressure has led many states to become involved, in addition to their traditional missions, with their national enterprises in the conquest of foreign markets, under various forms suited to their culture and history (sogososha in Japan,“advocacy policy” in the United States, professional federations in Germany or emigration networks in Italy, etc.).

Given the handicap that this state of affairs constitutes in a context of intense economic competition, in 1992 the CGP sought to redress the absence of a coherent and coordinated French approach permitting the development of synergy actions between the state and the firms by setting up a think tank charged with defining the decisions needed to adapt the French economy to the new context. The report, “Intelligence économique et stratégie des entreprises”, completed in 1994, underlined that France lags behind considerably in international economic competition and attributed that to a defensive and non-aggressive approach to the problem, often considered a banal technological matter. One of the suggested responses to the problem is the development of an economic intelligence concept within the national economic community. According to the report, development of economic intelligence in France should take three principles into account:

In keeping with this report, the Committee for Competitiveness and Economic Security (Comité pour la compétitivité et la sécurité economique—CCSE) was created in April 1995. Headed by Jean Arthuis, Economy and Finance Minister, this committee elaborates and implements a policy of defence of the French economy and defines the means by which economic intelligence can be developed in France.

Some proposals of the CGP think tank are already being implemented: diffusion of economic intelligence practice in enterprises; promotion of synergies between public and private sectors, especially in optimising the diffusion in the enterprises of useful information possessed by the state and the civil service; improvement of coordination between the different actors in foreign trade (banks, private and public actors); transformation of the CFCE into a national centre of economic intelligence dedicated to the conquest of foreign markets; mobilisation of the world of education and training, with the creation of specialised programmes in economic intelligence.

More recently, the CCSE delivered a report to Arthuis which confirms the options already taken for the diffusion of economic intelligence within the French business community. This report insists more particularly on the need to develop regional actions to heighten the awareness and train SMEs on economic intelligence, to analyse and rationalise public information production destined for enterprises, and to make all possible efforts to strengthen the innovation capacity of firms.

Likely reforms of the French FEP system

The reform of the French support mechanisms to the internationalisation of the economy takes its inspiration from the idea of economic intelligence and the necessary “spirit of conquest” dear to President Chirac. Thus the three following priorities were announced for 1997 announced by Yves Galland, Minister of the Foreign Trade:

Particular attention will be devoted to Asia, with the aim of tripling France’s market shares with Asian countries in the next ten years.

In order to turn French exports towards these countries, new dynamism will be given to the presence of French firms in these regions. A four-year plan (1996-99) has been introduced to shift the PEE network from OECD countries to emerging countries. Fifteen new agencies will be created in emerging countries (in particularly Brazil, India and China), and fifteen others will be closed in the European Community and Africa. At the end of this period, 210 jobs will have been created and the shares of French workforce present in emerging countries and in OECD countries should be 40 percent and 30 percent respectively, as compared to 28 percent and 42 percent today.

Adaptation to firms’ needs

The French support mechanisms to internationalisation are also being reorganised to make them more suited to the needs of the enterprises and to correct the shortcomings in information management and lack of coordination between the different bodies concerned. As suggested in a report by M. Karpeles, director of ACTIM, the government has decided to merge ACTIM, CFCE and CFME. The aim of this reform is to create a simple, efficient and less costly body, whose actions will be centred on information on foreign markets and promotion of the French know-how abroad. While waiting for the fusion of these three bodies, which was to take place on the 1st of January 1998, a transitory structure was set up. 20   It had three missions: to offer enterprises a single interlocutor (a measure which should favour a better readability of support mechanisms); to work out a common programme of actions responding to the enterprises’ needs, based upon a sectoral approach; to prepare for the future by associating the workforce and traditional partners of the PEE, CCI, DRCE and DATAR to the project.

Priority to SMEs

While they still do not contribute appreciably to foreign trade results, SMEs are nevertheless identified as the main source of potential progress in French exports, and as such have been targeted by public export support mechanisms. For example, some credits called “governmental protocols” will be reserved almost exclusively for SMEs, which now receive 15 percent of them; a department of the DREE entirely devoted to support of SMEs will be created; and a special adviser for SMEs will be nominated in every PEE. Moreover, the new structure which is to succeed the three bodies (ACTIM, CFME, CFCE) should provide a better response to the particular needs of SMEs, which have been consulted. The “portage” technique and the CSNE formula are also being encouraged.

The incentives to “portage” of SMEs by big export firms

In spite of its numerous advantages and possibilities, the “portage” technique is still little known. Only 20 big companies have occasionally practised it, and while 39 percent of SMEs know of the technique, only 5 percent of them have used it. 21   Nevertheless, the contribution that development of the“portage” could bring to the French economy has been assessed at 10 billion francs annually by mobilising 1500 SMEs and about 15 big companies. 22   Therefore, on the recommendations of Dassault, the government has decided to consider the “portage” as one of the development techniques for internationalisation of the French economy. It has also decided on the implementation of several measures to mobilise a large number of firms. These include setting up a promotion campaign for the “portage” with SMEs and big companies; organising the “portage” at a regional level with the involvement, in particular, of the DRCE; encouraging big companies to create “SME portage departments” and giving financial aid to those which endow themselves with a coherent “portage” system; reassuring SMEs about their fears (risk of confidentiality loss, competition risk, copy risk, etc.); establishing a national committee for carrying out“portage” operations.

The CSNE formula

The CSNE formula—doing military service abroad—is already a success, with 50 to 70 percent of the conscripts abroad being engaged by firms; it is nevertheless regrettable that SMEs do not profit more from it. At present, big companies use nearly 80 percent of CSNE. Several measures are thus planned to extend access to this formula to SMEs: the CSNE cost for the firms will be reduced; introduction of CSNE time-sharing—several firms will be able to share a CSNE—will reduce the costs for SMEs; multi-country CSNE should answer another preoccupation of SMEs in that they will be able to prospect several countries of the same region; a patronage formula will be used to overcome the absence of receiving structures abroad. The SMEs that do not have subsidiaries abroad will have their CSNE received by CCIFEs, PEEs or some larger enterprise.

Improved cooperation

The multiplication of international development initiatives by regions, departments or municipalities have been one of the most striking phenomena of these last years. Given the unsatisfactory coordination among the different actors, however, this new dynamism has not always been fruitful. The government has thus decided to improve the coherence and coordination of the actions of different regional actors (DRCE, CCI, and local, regional and departmental administrations) to establish a single office in the regions and to take account of heterogeneity and of particular regional situations: conventions should be signed between the different partners to institute coordination according to their wishes and local differences. At the same time, the synergies among the regional network, the central administration and the PEE should be reinforced. Lastly, reform of the support mechanisms should also lead to a redefinition of their role. The priority is not to encourage exporting SMEs to export more, but to help non-exporting SMEs to export. Public services, and especially regional ones, will be encouraged to do door-to-door canvassing among enterprises to help them solve problems they may encounter before actually exporting.

New principles for the attractiveness policies

As they open up a new range of actions for state and local bodies, the policies of attractiveness still generate many problems that must be solved. Taking into account the numerous contradictions of the present French attractiveness policy, the government defined three new orientations:

 

Conclusion

In the new context of globalisation and intensification of geo-economic competition, France is giving ever greater importance to its FEP. Since the beginning of 1990s, French governments have defined and implemented a wide range of reforms of the different support mechanisms to internationalisation of the French economy. The policy of opening to foreign investments has thus been reinforced by the development of various measures aimed at improving the attractiveness of the French territory for international investors. The export support mechanism have been readjusted numerous times to make them more efficient and better adapted to the needs of French enterprises, and especially SMEs. The present trend in French FEP will probably continue in coming years: becoming increasingly aware that foreign trade is one of the most effective spurs to economic recovery and especially job creation, French authorities will certainly pursue their efforts to increase the export capacity of French firms. Recent development of the concept of economic intelligence is another aspect of this“spirit of conquest” which will animate the French economic community in the coming years.

 

Tables

 

French Economic Fundamentals

TABLE UNAVAILABLE

Source: OECD, 1997

 

Inflation rates in France and Europe -

TABLE UNAVAILABLE

Source: OECD, June 1996

 

European labour costs

TABLE UNAVAILABLE

Source: OECD, 1996

 

Productivity in manufacturing

TABLE UNAVAILABLE

Source: The World Competitiveness Yearbook

 

Rate on return of capital

TABLE UNAVAILABLE

Source: OECD, June 1996

 

Pascal Lorot is Director of the Revue Française de Géoéonomie, Paris.

 

Endnotes

Note 1: “Investir en France, un espace attractif”, Rapport du Commissariat Général du Plan, 1992.  Back.

Note 2: The DATAR Invest in France Network (Paris: DATAR, 1997).  Back.

Note 3: The World Competitiveness Report (Paris: OECD, 1996).  Back.

Note 4: French Ministry of Economy and Finance, 1995.  Back.

Note 5: French Ministry of Industry, 1993.  Back.

Note 6: O. Dassault,“Le portage: une technique d’internationalisation des PME”, Rapport au premier ministre, mars-octobre 1994.  Back.

Note 7: Le Codex (Paris: DREE, January 1996).  Back.

Note 8: Schema simplifié du mécanisme de la provision fiscale, art. 39 octies du Code général des impôts (Paris: DREE, February 1997).  Back.

Note 9: DREE and OECD data, 1997; see also French Economic Fundamentals at the end of the article.  Back.

Note 10: Dassault,“Le portage”, p. 4.  Back.

Note 11: M. Laronche,“Petites entreprises pour grands marchés”, Le Monde, 18 March 1997.  Back.

Note 12: Note de conjoncture internationale de la Direction de la prévison, juin 1996, p. 26.  Back.

Note 13: Rapport de la Commission des Finances sur le projet de loi di Finance pour 1997, Assemblée nationale, Document no. 2030, 1996, p. 34.  Back.

Note 14: Ibid, p. 40.  Back.

Note 15: Rapport de la Commission des Affaires Etrangères sur le projet de loi de finances pour 1997, Assemblée Nationale, document no. 3032, p. 5.  Back.

Note 16: B. De Gastines,“Mission d’évaluation du dispositif d’appui à la exportation” , Rapport au premier ministre, 14 juin 1994, p. 11.  Back.

Note 17: Ibid.  Back.

Note 18: Assemblée Nationale, document no. 3032, p. 11.  Back.

Note 19: J. Arthuis,“Retrouver une sorte de patriotisme économique", Le Figaro, 6 January 1997, p. 8.  Back.

Note 20: Assemblée nationale, Document no. 3030, 1996, p. 53.  Back.

Note 21: Dassault,“Le portage”, p. 13.  Back.

Note 22: Ibid.  Back.