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 jobs and stimulate growth. Past debate in France over “economic patriotism” has 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, good infrastructure, technology, and central location in Europe. EU membership, which mandates the free (with certain limitations) movement of people, services, capital and goods across the European Union, took on even greater significance with the introduction of Euro coins and bills in January 2002. However, despite considerable economic reform and market liberalization over the past decade, U.S. and foreign companies often point to the tax environment, high cost of labor, rigid labor markets and occasional negative attitudes toward foreign investors as disincentives to investing in France. U.S. investors welcomed tax, labor and pension reform initiatives launched by President Sarkozy in 2007. Initially optimistic perceptions of France's economic outlook for 2008 have been followed by an apprehensive and uneven vision for 2009-2010, in the context of the international financial crisis. 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 acquisitions, irrespective of size or nationality, involving “sensitive” sectors are subject to prior approval by the Finance Minister ([http://www.legifrance.gouv.fr
] – search for the 31 December 2005 French Official Journal, decree 2005-1739 of 30 December 2005). Acquisitions involving sensitive sectors are screened. Sensitive sectors include: gambling activities, private security services, research, development or production of chemical or biological medicines, equipment for intercepting communications or eavesdropping, security services for computer systems, dual-use (civil and military) technologies; cryptology, firms that are repositories of defense secrets, firms that research, produce and sell military equipment, and lastly any other industry supplying the defense ministry any of the goods or services described above. Some investments in sensitive sectors require the consensus of several ministries, including the Defense Ministry. Only a few dozen cases are examined by the Finance Ministry each year and virtually all are approved. Only two transactions related to defense matters were rejected in the last ten years.
The EU Commission initially questioned whether the December 2005 decree respected the free circulation of capital and the freedom of establishment within the EU. The 2005 decree introduced a distinction between E.U. investors and non-EU investors, with a less restrictive regime applying to the former. However, the difference in treatment is often minimal.
The decree also changes the triggers for Government of France (GOF) investment scrutiny for firms in the sensitive sectors, stating that any investment that grants control of a firm, or surpasses the 33 percent 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 the place of residence rather than the nationality of a potential investor. The place of residence of a corporate investor is determined by the location of its owners, without regard to place of incorporation. While firms owned or controlled by American citizens who are legal residents 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 headquarters (“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) that might 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:
Ministère de l'Economie, de l'Industrie et de l'Emploi,
Direction Générale du Trésor et de la Politique Economique:
Multicom 2 - Services, Investissements et Propriété Intellectuelle
139, rue de Bercy
75012 Paris, France
Tel: (33)1 44-87-72-87
Agence des Participations de l’Etat
139, rue de Bercy
75012 Paris, France
Tel: (33)1 40-04-04-04
Information may be found on the Finance Ministry’s website: http://www.ape.bercy.gouv.fr/ .
AFII’s website (http://www.investinfrance.org/NorthAmerica
in English) explains the basic regulations covering foreign direct investment. It provides a general framework on legal issues to help businesses in its "Doing Business in France" section. 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
; search "Fiches pratiques" – "S'implanter en France").
Informal Impediments to Foreign Investors:
France has pursued economic reform that increases the attractiveness of the French economy to foreign investors, and French authorities offer a variety of investment incentives. 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 before, France 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, official comments regarding the purpose of the recently-established French "Strategic Investment Fund," sometimes misleadingly referred to as a French sovereign wealth fund, highlighted French sensitivity about hostile foreign takeovers.
Most businesses must deal with significant tax and labor market regulatory issues. Corporate tax rates are high in comparison 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 used the transition to the 35-hour workweek as an opportunity to negotiate work-hour annualization programs with employees that allow 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 current government has taken measures to make the law less rigid. It also has introduced more flexibility in employment contracts (See D. Labor).
Successive 2008 increases in minimum wage (“Salaire Minimum Interprofessionel de Croissance – SMIC”) of 2.3% and 0.9% kept pace with inflation. Gross wages per employee in the private sector are expected to increase at a slightly lower rate in 2009 (3.1 percent) compared with 2008 (3.3 percent) as inflation is expected to decelerate.
The government decision to further cut income and payroll taxes on low wage positions in 2009 should make France a more attractive place for both French and foreign investment.
The French have two social security taxes, the "Contribution Sociale Generalisee" (CSG) and the "Contribution au Remboursement de la Dette Sociale" (CRDS). 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-solidarite.gouv.fr/documentation-publications-videotheque/bulletins-officiels/annee-2001/bulletin-officiel-no-2001-09-du-20-mai-2001-.html
On December 8, 2004, the United States amended the income tax convention between the United States and France to avoid double taxation and prevent tax evasion; along with the estate and gift tax convention to avoid double taxation with respect to taxes on estates, inheritances and gifts [http://www.ustreas.gov/offices/tax-policy/library/franceegprotocol04.pdf
]. In December 2005, the French government ratified the two amendments, and they entered into force on December 21, 2006. The provisions resolve problems related to the double taxation of partnerships and estates. The U.S. Treasury provided a technical explanation in February 2006 [http://www.treas.gov/press/releases/reports/tefrencheg06.pdf
On January 13, 2009 the United States and France signed another protocol, further amending the tax convention, as well as a Memorandum of Understanding as to how this protocol is to be implemented. The agreement provides for the elimination of source-country taxation of certain direct dividends as well as the elimination of source-country taxation of cross-border royalty payments. The protocol has yet to be ratified but is retroactively effective on January 1 of the year in which it is ratified. http://www.treas.gov/offices/tax-policy/library/FranceProtocol2009.pdf http://www.treas.gov/press/releases/reports/memorandum%20of%20understanding_.pdf
English summaries of labor and tax regulations applicable to foreign companies in France are available at the AFII's website [http://www.investinfrance.org/
, search “Your project in France”] and at the Paris Chamber of Commerce and Industries' website ([http://www.inforeg.CCIP.fr
] search “fiches pratiques” – droit fiscal).
France's Privatization Program:
The Socialist-led government that took office in July 1997 returned to the private sector all or parts of the government’s stakes in a number of large companies, banks and insurance groups. U.S. firms showed interest in some of these sales. A center-right government elected in 2002 announced preliminary plans for further privatization, 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, France Telecom, Thales (formerly Thomson CSF), Renault, and Thomson through TSA). Smaller projects, including the privatization of SAPRR (Paris-Rhine-Rhone Highway Company) and of the electricity company SNET, also were carried out. In the energy sector, the government sold shares in EDF and GDF, but postponed the privatization of the nuclear power company, Areva. A December 7, 2006 law authorized the reduction of the government stake in GDF to 33.33 percent from 70 percent to permit the merger of Gaz de France (GDF) and Suez. The government sold a 2.5 percent stake in EDF in 2007 and a 5.0 percent stake in France Telecom to reduce the public debt. In January 2009, the government has stakes in listed companies including Aéroports de Paris (60.38 percent), Air France KLM (15.65 percent), CNP Assurances (1.09 percent), EADS (15.08 percent), EDF (84.67 percent), France Telecom (26.65 percent), GDF-Suez (35,66 percent), Renault (15.01 percent), Safran (30.20 percent), and Thalès (27.10 percent), and in unlisted companies including SNCF, RATP, CDC and La Banque Postale. In November 2008, the government acquired a 33.34% stake in STX France Cruise, the major shareholder of the Chantiers de l'Atlantique shipyard. Based on a 2006 survey released in 2008, the government had a majority stake in 845 smaller firms in a variety of sectors, and a minority stake in 500 other firms.
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, Industry and Employment on the advice of the quasi-independent "Commission des Participations et des Transferts" (formerly known as the Privatization Commission). Both consider the financial and business plans submitted by bidders. There is a strict legal and procedural process regulating these decisions, but the confidential nature of off-market sales can raise suspicions about the equal treatment of foreign versus French bidders. This can 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 targeted at foreign companies and has not been a part of every privatization process. A golden share gives the government three legal rights:
- To require prior authorization from the Ministry of the Economy, Industry and Employment 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.
In June 2002 the European Court of Justice reaffirmed the basic principle of free movement of capital in the EU and stated that the use by some EU countries, including France, of golden shares was a serious impediment to that principle. Nonetheless, a December 7, 2006 French law related to the energy sector included the possibility for the government to keep a golden share in Gaz de France (GDF) to oppose any measure that might jeopardize the security of energy supplies. The Government maintained its golden share following the merger of GDF with Suez, with the blessing of the European Commission. The Government has also considered retaining a golden share in any restructuring of Areva through loopholes in the court's decision. Areva’s chairman has stated that the golden share could be consistent with EU requirements.
French Government Participation in R&D Programs:
Total annual R&D expenditures as a percentage of GDP in 2007 remained stable (2.14 percent in 2006, 2.13 percent in 2007). The GOF has confirmed for the 2009-2011 period its commitment to promote higher education and research: the higher education and research budget will rise by 1.8 billion euros in 2009, up 6.5% compared with 2008 (including 800 million euros for research and innovation). A similar increase is scheduled in 2010 and 2011 when funding is expected to reach 26 billion euros. The French government relies on increased tax credits and incentives for the development of new investment structures to boost industrial research and eventually reach the EU’s “Lisbon agenda” goal to increase total R&D funding to 3 percent of GDP by 2010, with 2 percent coming from the private sector. Four areas (automobile, pharmaceutical, communication and aeronautics) account for more than 53 percent of research expenditure in the private sector. In the public sector, research is handled by research organizations, higher education research centers and Defense ministry laboratories.
The Research and Innovation Bill, adopted in 2006, reinforces science-industry relations and promotes greater strategic direction. In 2007 and 2008, the government gave a new impulse to government-funded research via a new university governance law giving universities a stronger role in driving research. The new legislation provides for a High Council for Science and Technology, a National Research Agency, and reinforcement of “competitiveness clusters,” and an Industrial Innovation Agency. Private enterprise benefits from more flexible working arrangements with government scientists, as well as by receiving R&D tax incentives. The GOF also supports partnerships between public research agencies and universities within the framework of “Research and Higher Education Hubs,” and “Advanced Research Thematic Foundations.”
The GOF sponsors R&D and technology development programs at three different levels:
- International/European programs (e.g. 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 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 handicaps, 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 new sources of energy, clean vehicles, energy storage and use of hydrogen, nuclear systems and nuclear fusion); information and communication technologies; nanotechnologies; and space.
Visas, Work Requirements:
The government of France requires foreign citizens to 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 commerçant - 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.expatries.org/default.aspx?SID=12291&DYN_VIEW=DETAIL&PAYS=ETATS-UNIS+D'AMERIQUE
] . For more information on the foreign trader's card, please consult the Invest in France agency web site at: [http://www.invest-in-france.org/north-america/en/launching-your-project.html
]. For more information on other types of visas and applicable fees, contact your local Consulate General of France. A foreigner's ability to practice a profession may be restricted 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. 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.
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. As part of fight against money laundering, seventeen OECD members including France tasked the OECD with drafting a new expanded blacklist of countries failing to cooperate on tax evasion and transparency by the end of June 2009.
France sometimes uses its powers under national law to freeze assets of terrorists.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. 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) France 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). Performance Requirements and Incentives
France offers a range of financial incentives to foreign investors. The following information reflects incentives as they existed at time of this writing.
France's domestic planning and investment promotion agency, DIACT (Delegation Interministerielle a l’Amènagement et la Compétitivité des Territoires) has a broad mandate, including increasing the “attractiveness” of France 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 DIACT/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 San Francisco
88 Kearny Street, Suite 700
Tel: (415) 781 0986
Fax: (415) 781 0987
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'Amènagement du Territoire (PAT). The government defined a new list of eligible zones for the 2007-2013 period. Two implementing decrees issued in May and June 2007 (2007-809 decree on May 11, 2007 and 2007-1029 on June 15 2007)
provide details on the current PAT system.The system requires job creation from investors (see Performance Requirements), but its subsidies can be generous. PAT may also be collected by firms that maintain employment when the investment is significant. The system is even more flexible for small and medium sized companies. Other investment incentives may also be available. 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 27,2002 Local Democracy Law ("Démocratie de proximité" (http://www.legifrance.gouv.fr
]) gives regional councils ("Conseils Regionaux") full powers to establish (without decree or national convention) schemes for direct aid 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 under 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. 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. Right to Private Ownership and Establishment
The French government maintains legal monopolies in the following sectors: postal services (La Poste maintains a monopoly on letter mail below 50 grams), national rail transportation (SNCF), Parisian bus and metro services (RATP), and tobacco manufacturing and distribution (Altaldis – former 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 continued to increase -- meaning that consumers are 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. Protection of Property Rights
The French government continues its efforts to enforce intellectual property rights. In April 2007, the GOF issued its implementing decree regarding the French Digital Copyright Law of August 2006. The decree established a Technical Measures Regulation Authority (TMRA) to regulate issues relating to the “mandated” interoperability of digital rights management (DRM) systems, as well as rights to copy original works for private use. To address what President Sarkozy called the challenge of the “protection of cultural works in the new networks of communication,” a new bill has been introduced in Parliament titled “Creation and the Internet” which is the result of the work of a commission chaired by Denis Olivennes, former CEO of the leading French entertainment retailer FNAC, following negotiations with French entertainment producers, copyright holders, and Internet service providers (ISPs). These negotiations led to a series of proposals on combating internet piracy and stimulating the growth of a legal digital music and movie market. It is anticipated this bill will be passed by parliament during the first quarter of 2009.
The most important of the bill’s provisions is the “three strikes and you’re out” rule, which would deny internet access to repeat offenders who illegally download. A new independent authority would also have the authority to issue alerts, warnings and finally suspend or terminate internet service for individuals suspected of illegal downloading. This authority would also have the power to sanction ISP providers that fail to comply with its injunctions.
France is a traditionally strong defender of intellectual property rights and has highly developed protection 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 a 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.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 Competition Authority 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. Where 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 Transatlantic Economic Council, established in Spring 2007 at U.S.-EU annual Summit, and which met on December 12, 2008, focuses on improving regulatory cooperation.
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. Efficient Capital Markets and Portfolio Investment
Access to Capital and Capital Markets:
France has an open financial market that allows 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 and in 2007 its main market, Euronext, merged with the New York Stock Exchange.
As with most EU companies, French listed companies have been required to use international accounting standards since 2005. Some aspects of French legal, regulatory and accounting systems may not be as transparent as U.S. systems, but they are consistent with international norms. Under special arrangement between the SEC and European counterparts, U.S.-listed firms applying U.S GAAP do not need to reconcile their accounts under IFRS.
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, mergers, acquisitions and takeovers. Banks offer hedging services against interest rate and currency fluctuations. France has 161 foreign banks, one third of which are non-EU banks (some with sizable branch networks) with total assets accounting for around 10 percent of total bank assets at the end of 2007. 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, 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). 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). 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” still used by some 260 small businesses for their first stock listing. Euronext also administers the financial futures market, commonly known as the MATIF ("Marché à Terme des Instruments Financiers"), for trading of 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 Négociables de Paris” (MONEP) exchange, operated by Euronext. Finally, though not nearly as developed as in the United States or the United Kingdom, venture capital has become an increasingly important way for start-up firms to raise capital. The NYSE merged with Euronext in March 2007. As of November 2008, NYSE Euronext listed 6,500 companies, with a total capitalization of USD 3 trillion. The merger has increased international exposure to the European exchange and reduced trading fees, which should attract more investors.
Foreigners hold approximately 45% percent (CAN WE SAY "APPROXIMATELY 45% OF" – IN SPIRIT OF NOT GOING FOR TOO MUCH GRANULARITY IN ABSENCE OF INFO ON EXACT DATE/TIME FOREIGNERS HELD 46.2% OF CAP) of the capital of large publicly traded French companies (CAC 40). For a foreign company incorporated in an OECD country to be listed on the NYSE 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 "Autorité des Marchés Financiers - AMF,” the French equivalent of the SEC. Foreign companies are authorized to provide statements in English and a short summary in French. Since July 1, 2005, France has applied European regulation 809-2004 that details the content of prospectuses. 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/index-2166-FR.html
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, according to a 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 by imposing some additional obligations on investors taking control of a company listed on a French market depending on the level of voting rights in the targeted company and the nature of the proposed acquisition. In October 2008, AMF announced it planned to reduce the threshold of shares or voting rights that obliges a company to launch a mandatory tender offer from 33 percent to 25 or 30 percent. To date nothing indicates the proposed measures are anything other than an attempt to increase transparency of all market participants.
In transposing the European takeover directive, France has tried to reconcile its objectives of reestablishing its credentials as an investor-friendly country, while allowing companies to defend themselves against “predators.” French companies may suspend implementation of a takeover if they are targeted by a foreign company that does not apply reciprocal rules. The government also introduced an amendment allowing a U.S.-style “poison pill” takeover defense, including granting existing shareholders and employees the right to increase their leverage by buying more shares through stock purchase warrants (“bons de souscription d’actions - BSA”) at a discount in case of an unwanted takeover. New provisions include a reform of AMF supervisory procedures. Procedures cover declaration of conformity, offer price, declaration of a bid in relation to takeover rumors and nomination of an independent appraiser when conflicts of interests exist [http://www.amf-France.org/affiche_page.asp?urldoc=mediateur.htm&lang=fr&Id_Tab=0
]. 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. That said, such incidents 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. Perceived discrimination and a lack of economic opportunity contributed to disturbances that affected poorer, largely Muslim suburbs of France’s largest cities in recent years. Most observers believe the unrest was fanned by small groups of youths looking for trouble, and incidents of violence have largely dissipated. Moreover, since the terrorist attacks of September 11, 2001, there have been relatively fewer anti-American demonstrations in France as compared to prior years.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.
French magistrates launched a probe in December 2006 of officials from French oil company Total for the bribery of foreign civil servants, a criminal offence in France subsequent to the GOF's 2000 ratification of the OECD Anti-Bribery Convention and enactment of related implementing legislation. The OECD Anti-Bribery Conventions are 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, 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.
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.
In July 2007, French Parliament approved the additional protocol to the Council of Europe's criminal convention on corruption.
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 [http://www.Transparency.org
]. According to Transparency International’s French Chapter, the sectors most affected by corrupt practices tend to be public works and the defense industry.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, and in obtaining and maintaining patent and trademarks. (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);
- 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.;
- 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 that are 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 - “Accords de protection et d’encouragement reciproques des investissements”) with the following 85 countries: Albania, Algeria, Argentina, Armenia, Azerbaijan, Bangladesh, Bolivia, Bulgaria, Cambodia, 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, Mexico, Moldova, Mongolia, Morocco, Nepal, Nicaragua, Nigeria, Oman, Pakistan, Panama, Paraguay, Peru, Philippines, Poland, the Dominican Republic, Qatar, Romania, Saudi Arabia, Russia, Singapore, Slovakia, Slovenia, South Africa, Sri Lanka, Sudan, Syria, Trinidad and Tobago, Tajikistan, Tunisia, Turkmenistan, Ukraine, United Arab Emirates, Uruguay, Uzbekistan, Venezuela, Vietnam, Yemen, and the former Federal Republic of Yugoslavia.
Bilateral Investment Treaties signed with the following 12 countries have not yet been ratified: Bahrain, Belarus, Bosnia, Brazil, Ghana, Libya, Madagascar, Mozambique, Namibia, Uganda, Zambia and Zimbabwe. In October 2008, the Foreign and European Affairs Minister introduced three bills authorizing the approval of BITs with China, Kenya and Equatorial Guinea. The agreement signed with China replaces the 1984 agreement, and includes norms related to international arbitrage and free capital flows. The agreements signed with Equatorial Guinea and Kenya will provide investors with a protective and consistent legal framework.
French BITs generally cover the following:
OPIC and Other Investment Insurance Programs
- 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 is prompt and adequate;
- Free transfers;
- The ability to resolve investor-state disputes through binding international arbitration.
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 [http://www.opic.gov
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. Part of President Nicolas Sarkozy's economic reforms ("Work more to earn more”) has aimed at greater flexibility regarding the 35-hour workweek. Tax exemptions on overtime work were included in the GOF's fiscal packaged approved by Parliament and took effect October 1, 2007. Employees working overtime are exempt from personal income tax on those hours, and employees and employers benefit from reduced payroll taxes on overtime work. Business welcomed the GOF’s efforts, but has complained that the implementing regulations are confusing and costly for French companies.
Talks between employers and unions on revising labor contracts to make hiring and firing easier resulted in agreement on a number of points in early 2008. The government had threatened to introduce a tougher draft bill in Parliament if the talks had broken down. The agreed-upon measures have subsequently been ratified by Parliament, as required by law.
The President' proposal to streamline assistance to job-seekers by merging France's national job placement and unemployment agencies was passed by the Parliament in January 2008, and enacted in September 2008.
At the end of 2006, France adopted an employees’ shareholding law (“Loi sur la Participation”), which involves some changes in the labor code. The law encourages the purchase of shares by employees, the development of employees’ investment/retirement savings accounts, and better representation of employees as shareholders. Employees in large companies who are laid off for economic reasons may benefit from “mobility leave” which involves training, short-term contracts, or transfer to another company. A new “transport allowance” will benefit employees who commute using public or private transportation. ([http://www.legifrance.gouv.fr
] – search the 31 December 2006 French Official Journal – law 2006-1770 of 30 December 2006).
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 traditionally have tended to use less labor-intensive procedures and rely more on labor saving technology than businesses in other countries. This is one reason for France's high unemployment rate. 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 in return for commitments in favor of employment. 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”)]. France has redesignated trade zones in May 2007 [http://www.zones-franches.org/PDF/textes_lois/decret2007894.pdf
In addition, the French government has extended the tax exemption program for five years, until December 31, 2011, in the existing urban "enterprise zones" (“Zones Franches Urbaines”). Since January 2004, all such zones have benefited from tax exemptions on corporate tax, payroll taxes, professional tax and real estate tax. The December 19, 2006 decree designated new urban zones. Related information is available at the City Government web site [http://www.legifrance.gouv.fr/affichTexte.do?cidTexte=JORFTEXT000000641190&dateTexte=
More information on enterprise and investment zones is available from various sources: [http://www.zones-franches.org
] for assistance to small and medium sized companies.
France has 71 "competitiveness clusters" designed to reinforce innovation and encourage innovative businesses to remain in France. Many clusters are pursuing projects with international partners. Clusters benefit from income and social tax exemptions. Clusters involved in research and innovation also benefit from financial support from the state-owned investment bank Caisse des Dépôts. [Directory of French clusters: http://www.competitivite.gouv.fr/spip.php?rubrique36&lang=en
; map of clusters: http://www.competitivite.gouv.fr/spip.php?rubrique44&lang=en
]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, consultancy and services. Although the current recessionary environment will impact foreign investment, France remains one of the main destinations of foreign direct investment (FDI) in the world. According to preliminary UNCTAD estimates, France was the second largest recipient of foreign direct investment inflows in 2008, despite a 27 percent drop compared to 2007. Foreign direct investment inflows accounted for 6.4 percent of GDP in 2007. 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 11.2 percent of the stock of foreign investment in 2006 (most recent data available), slightly down from 12.4 percent in previous years.
Using the book value instead of the market value of investments tends to underestimate the value of U.S. investment 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 it may ultimately be controlled by U.S. citizens. The December 30, 2005 decree 2005-1739 on financial relations with foreign countries defines foreign investment operations that have to be notified to the Bank of France for the establishment of the balance of payments and France’s external position. Firms with questions should contact the Bank of France at the following address:
Banque de France
Service de la Balance des Paiements
31, rue Croix-des-Petits Champs
Correcting for 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 68.5 billion book value for 2007 reported in U.S. Department of Commerce data ([http://bea.gov
] search in International). Approximately 1,350 affiliates of U.S. firms are established in France. An estimated 650,000 jobs result from U.S.-originated investments.
Today, foreign-controlled firms play a significant role in France's economy, accounting for 20 percent of capital expenditures (source: UNCTAD), 37 percent of sales, 31 percent of employment, and 8 percent of employment in the services sector (source: OECD).
An updated list of recent U.S. investment projects ors may be found on [http://www.invest-in-france.org/north-america/successful-business-developments-in-France.html
A list of foreign investors by industry can be found in the 2008 Amcham directory published by the American Chamber of Commerce in France
156, boulevard Haussmann
Tel: 01 56 43 45 67 Fax: 01 56 43 45 60.
Information spreadsheets may be sent by e-mail; consult http://www.amchamfrance.org
Useful information on the 1000 largest companies and financial institutions established in France can be found in local periodicals such as Expansion ("Les 1000 de l'Expansion": [http://www.lexpansion.com/economie/classement/atlas.asp?idc=124715&typerec=3&code secteur1000=1]
). Stock by country of origin (Book value) (USD billions)
Source: Bank of France
|Total as percent of GDP||28.4||30.8||32.4|
|USD 1.00 equals Euro||0.80||0.80||0.80|
Stock of Foreign Investment in France (Market value) (USD billions)
Source: Bank of France
|Total as percent of GDP||46.5||49.1||54.3|
|USD 1.00 equals Euro||0.80||0.80||0.80|
Stock by Industrial Sector of Origin (Book value)(USD billions)
Source: Bank of France
|and Services to companies||174||207||233|
|USD1.00 equals Euro||0.88||0.80||0.80|
Flows by country of origin (Market value) (USD billions)
Source: Bank of France
|Total as percent of GDP||4.1||3.6||6.4|
|USD1.00 equals Euro||0.80||0.80||0.80|
Stock by country of destination (Book value) (USD billions)
Source: Bank of France
|Total as percent of GDP||37.4||42.7||44.3|
|USD 1.00 equals Euro||0.80||0.80||0.80|
Stock of French FDI Abroad (Market value) (USD billions)
|Total as a percent of GDP||64.5||74.8||88.0||Stock by Industrial Sector Destination (Book value)(USD billions) |
Source: Bank of France
|Real estate and|
|Services to companies||108||112||133|
|USD 1.00 equals Euro||0.80||0.80||0.80|
Flows by country of destination (Market value) (USD billions)
Source: Bank of France
|Total as a percent of GDP||5.6||5.6||9.1|
|USD 1.00 equals Euro||0.88||0.80||0.80|