France: French firms seek closer links with U.S. companies as they prepare for the increased competition of EC 1992 - European Community - single European market of 1992

Business America, Sept 9, 1991

Following two years of strong growth, the French economy slowed in 1990. Reflecting the sluggish international environment (beginning prior to the Gulf Crisis), the two main engines of French growth over the past few years - corporate investment and exports - moderated.

Growth prospects are limited in the short-term. Economic activity was stagnant for the first six months of 1991, with corporate investment taking a nosedive and export growth weak. Even though growth in purchasing power has remained healthy, consumer confidence has not bounced back following the end of Gulf hostilities, and consumption has been essentially flat since the beginning of the year. With few signs of an upturn on the horizon, forecasters have steadily reduced their 1991 growth projections. The consensus has been that a modest economic recovery will begin sometime in the current (third) quarter of the year. GDP growth, fueled primarily by export growth as international demand strengthens, is not expected to top 1.5 percent for the year. Corporate investment and consumption are both forecast to pick up soon as well.

Despite the slower economic growth, and surging unemployment, the French government has reinforced its commitment to the maintenance of fiscal and monetary discipline to check any inflationary pressures, ensure a strong franc, and create the climate for a drop in interest rates. Likewise, it has taken additional measures to promote investment as the best way to address its chief areas of concern: growing unemployment and a moderate but persistent trade deficit.

The United States is one of France's most important foreign investors. For the last several years, the stock of U.S. investment in France has been steadily climbing, reaching $17.1 billion at the end of 1990.

During the 1960s and 1970s, the French authorities tended to take an ambivalent approach to foreign investment. The positive aspects often were overshadowed by concerns over possible multinational of foreign domination of French industry. In recent years, the government has become steadily more enthusiastic about foreign investment as supportive of its goals to combat unemployment, boost exports, contain imports, and improve the competitiveness of the French economy. Acquisitions by non-EC investors continue to be carefully reviewed by the government, although administrative controls have been streamlined.

The authorization process is administered by the Ministry of Finance. Since September 1988, foreign investors establishing new business operations in France have not been subject to advance notice and approval requirements. In January 1990, the French government took additional liberalization measures. Purchasers by "established" EC investors no longer need prior application or approval. Established EC firms are defined as those under ultimate control of European Community shareholders, which have an annual turnover in excess of FFI billion, and which have been in business for at least three years. Other EC firms face a delay of up to 15 days after notification. The 1990 investment reform law also set a time limit for review of acquisitions by non-EC firms. Unless the Finance Ministry takes action within 30 days of receiving all requested paperwork, the acquisition is considered approved. All acquisitions involving the health, safety, or national security of France are also subject to this one-month delay.

Foreign investors can take advantage of a number of incentive measures in France encouraging investment, especially industrial investment, in disadvantaged regions outside the Paris and Lyon metropolitan areas. These include tax incentives, special investment loans, training, subsidies, and favorable land options. Incentives programs are administered by both the central government and the regional or local authorities. Foreign firms may also benefit from government incentives for research and development.

Additional information on investment is available from the Invest in France Agency (DATAR), whose New York address is: 610 Fifth Ave., Suite 301, New York, N.Y. 10020; tel. (212) 757-9340, fax (212) 245-1568. Additional DATAR offices are located in Houston, Los Angeles, and Chicago.

France is determined to be competitive in the EC Single Market, which begins Jan. 1. 1993. Ironically, many French firms see even closer ties with the United States as a good way to prepare for the increased internal competition inevitable with EC unification. This attitude has resulted in strategic alliances, mergers, acquisitions, and joint ventures with American companies, as well as an intensive search for additional products to bolster or round out product lines currently offered by French companies. Last year France provided in estimated $19.5 billion in investment to the United States.

French business has been quick to exploit the 1992 theme to push the government to accelerate market reforms. Indeed, French industry, led by the French Employers' Association, deserves much of the credit for bringing the theme of 1992 to the public's attention.