Foreign investors say they are attracted to France by its skilled and productive labor force, good infrastructure, technology, and central location in Europe. France’s EU and Eurozone membership facilitate the movement of people, services, capital and goods. However, despite considerable economic reform, market liberalization, and sustained French Government efforts to attract foreign investment 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 planning to restructure, downsize or close as disincentives to investing in France. France introduced significant tax, labor, and pension reform initiatives in 2007 and 2010. President Sarkozy is credited with introducing tax-free overtime payments and eliminating the annual flat business tax. He also increased the tax credit for investments in small and medium enterprises (SMEs) that increase a firm's equity capital. In a 2010 American Chamber of Commerce poll, U.S. investors expressed optimism about France emerging from the financial crisis.
The French government sees foreign investment as a way to create jobs and stimulate growth. Investment regulations are simple, and a range of financial incentives are available to foreign investors. A public organization, the French Agency for International Investment (Agence Francaise pour les Investissements Internationaux – AFII) coordinates all agencies 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.
The Formal Investment Regime
The formal French investment regime is among the least restrictive in the world. While there is no generalized screening of foreign investment, legislation was passed at the end of 2005 (decree 2005-1739) stipulating that acquisitions, irrespective of size or nationality, involving “sensitive” sectors are subject to prior notification, screening, and approval by the Minister of Finance. The decree lists a total of eleven strategic sectors:
- money gambling and casino activities,
- private security services,
- research, development or production of pathogens or toxic substances for unlawful use or terrorist activities,
- wire tapping and mail interception equipment,
- testing and certification of the security of information technology products and systems,
- goods or services related to the information security systems of companies managing critical infrastructure,
- dual-use (civil and military) items and technologies,
- cryptology services,
- activities of firms entrusted with national defense secrets,
- research, produce or trade in weapons, ammunitions, and explosive substances intended for military purposes,
- any business supplying the French defense ministry with any of the goods or services described above.
Some investments in sensitive sectors require the consent of several ministries, including the Defense Ministry. Actual or would-be foreign takeover bids are prone to rumors about possible application of the December 2005 decree on "economic patriotism,” which allows the government to prevent foreign interests from gaining control of French companies in strategic sectors. The EU Commission initially questioned whether the decree respected the free circulation of capital and the freedom of establishment within the EU because it subjects non-EU investors to a more restrictive approval regime. The decree also changes the triggers for Government of France (GOF) investment scrutiny for firms in several very sensitive sectors, stating that any investment that grants control of a firm, or surpasses a 33 percent ownership threshold, or involves any part of any branch of any firm that has established headquarters in France, is subject to GOF review.
AFII’s website (http://www.investinfrance.org/NorthAmerica in English) explains French regulations on foreign direct investment in its "Doing Business in France" section.
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.
However, France still has a traditional preference for state intervention, including at the highest political levels, 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, do not sufficiently engage in a social dialogue or respect the legal obligations of companies undergoing restructuring. 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.
Corporate tax rates are high compared to those in other leading industrial countries. Foreign investors most often cite high income and payroll taxes, as well as complicated and pervasive labor regulation, 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. A study by France’s Labor Ministry showed that in September 2011, French workers averaged 35.6 hours per week in private firms with more than ten employees.
The January 2012 increase in minimum wage (“Salaire Minimum Interprofessionnel de Croissance – SMIC”) of 2.4 percent kept pace with inflation. Gross wages per employee in the private sector increased at a higher rate in the third quarter of 2011 (2.2 percent), than in the same period in 2010 (1.7 percent). Income and payroll tax cuts on low-wage positions, combined with payroll tax cuts on overtime paid by employers, and government support to job creation in very small companies made France a more attractive place for both French and foreign investors.
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 ordinance to apply the 1408/71 EEC regulation, only individuals who are subject to income taxes in France and contribute to and benefit from the French social security system including health insurance pay CSG and CRDS.)
On December 8, 2004, the United States amended the bilateral tax treaty 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. The amendments entered into force on December 21, 2006. On January 13, 2009, the United States and France signed another protocol further amending the tax convention that entered into force on December 23, 2009. The agreement eliminates source-country tax withholding on certain direct dividends as well as cross-border royalty payments, retroactive to January 1, 2009. It also provides for mandatory binding arbitration of certain cases and a comprehensive limitation on benefits provision.
English summaries of labor and tax regulations applicable to foreign companies in France are available at the AFII's website [http://www.investinfrance.org/ and at the Paris Chamber of Commerce and Industries' website ([http://www.inforeg.CCIP.fr] ).
Government Stakes in the Corporate Sector
As of December 2011, the government has direct stakes in Aéroports de Paris (52.13 percent), Air France KLM (15.84 percent), CNP Assurances (1.09 percent), EADS (15.03 percent), EDF (84.44 percent), France Telecom (13.45 percent), GDF-Suez (36.05 percent), Renault (15.01 percent), Safran (30.20 percent), and Thalès (27.52 percent), and in unlisted companies including SNCF, RATP, CDC and La Banque Postale. When the French nuclear energy group Areva increased its capital in December 2010, the government brought its direct interest in the firm up to 10.2 percent (from 8.39 percent) and approved a foreign fund, Kuwait's sovereign wealth fund, for a 4.8 percent stake in Areva. When Norwegian shipbuilder Aker sold its interest in the Chantiers de l'Atlantique shipyard to the South Korean company STX in 2008, the French government took a 33.34% stake in the enterprise. By the end of 2010, the government had a majority stake in 1,217 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, Finance and Industry 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.
The 1993 privatization law gives the French government the option to maintain a so-called "golden share" in privatized companies 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, Finance and Industry for any investor or group of investors acting in concert to own more than a certain percentage of a firm's capital. The thresholds would apply to all investors;
- To name up to two non-voting members to the firm's board of directors; and
- To block the sale of any asset to protect "national interests." Assets could include shares, but also buildings, technology, patents, trademarks, and any other tangible or intangible property.
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 allowed 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. 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 expenditure increased to 2.3 percent of GDP in 2009 and 2010, its highest level since 1993, but did not meet the EU target of 3 percent for 2020. The GOF confirmed in the 2012 budget its commitment to promoting higher education and research, making it its top priority. For the fourth consecutive year, the higher education and research budget will increase, by 256 million euros from 2011 to 2012 to 25.4 billion euros. The French government relies on tax credits and incentives for the development of new investment structures to boost industrial research including by small and medium-sized companies. Those tax credits rose by 4.2 billion euros in 2010 and are estimated to be 5.3 billion euros in the 2012 budget. The number of firms benefiting from tax credits increased by 60 percent between 2007 and 2009. Eighty percent of the beneficiaries were small and medium-sized companies. The industry sector received 75 percent of tax credits. 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 Ministry of Defense laboratories.
In 2007 and 2008, the government gave a boost to publicly funded research via a new university governance law conferring on universities a stronger role in managing budgets and human resources, including staff salaries and bonuses, and driving research. All universities will have switched to autonomous status by August 2012. This legislation provides for a High Council for Science and Technology, a National Research Agency, the strengthening of “competitiveness clusters,” and an Industrial Innovation Agency. Private enterprise benefits from more flexible working arrangements with government scientists, as well as 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:
1. International/European programs (e.g. ESA, CERN, EUREKA, EU Framework program);
2. 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
3. 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 and modernization of research networks for higher education; nanotechnologies; and space.
Visas, Work Requirements
The government of France requires non-EU citizens to fulfill a number of requirements in order to work in France for either French or foreign-controlled firms. Non-EU nationals who intend to work or conduct any commercial activity in France must receive a long-term visa and a work permit (Carte de travail) or business permit (Carte de commercant - foreign trader's card) before establishing residence in France. Information can be obtained from French consulates in the United States. For more information on the foreign trader's card, please consult the Invest in France 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.
Third Party Indicators
TI Corruption Index
6.8/25 (out of 178)
Heritage Economic Freedom
64.2/64 (out of 183)
World Bank Doing Business
26 (out of 183)
Monetary 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. France established its own tax-haven black list in February 2010, and plans to update it annually. France uses its powers under national law to freeze assets of terrorists. It also cooperates internationally and at the United Nations on terrorist financing issues.
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.
There have been few major disputes involving 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). In 2010, the French government appointed a Mediator for corporate relations between industry and subcontractors. The Mediator works with French and foreign firms to resolve intercompany disputes regarding contractual obligations (payment terms, notice for order modification, product returns, etc.).
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. 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. 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, DATAR (Delegation Interministerielle a l’Amènagement du Territoire et à l'Attractivite Regionale) 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 based at the Ministry of the Economy, and backed up by DATAR. DATAR 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 DATAR) and administrative and legal requirements. DATAR's overseas offices are called "Invest in France Agencies" (IFA) or IFANA in North America. There are three IFA offices in the United States:
Northern and Eastern States
IFANA New York
Philippe Parfait, Director
810 Seventh Avenue, Suite 3800
New York, NY 10019
Tel: (212) 757-9340
Fax: (212) 245-1568
Western and Southern States
IFANA San Francisco
Caroline Laporte, Director
88 Kearny Street, Suite 700
Tel: (415) 781 0986
Fax: (415) 781 0987
Michel Gilbert, Director
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 is http://www.datar.gouv.fr/ .
The primary investment incentive offered through DATAR is a financial bonus called the Prime d'Amenagement du Territoire (PAT) for investment in an eligible geographical zone. Three implementing decrees (2007-809 decree in May 2007, 2007-1029 in June 2007, and 2009-333 in March 2009) 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 DATAR 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 DATAR/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 gives regional councils full powers to establish schemes for direct aid to companies (subsidies, reduced interest rates on loans, and advances). All incentives are subject to EU regulations.
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, and safeguarded technology and industry IPR.
Right to Private Ownership and Establishment
The French government maintains legal monopolies in the following sectors: national rail transportation (SNCF), Parisian bus and metro services (RATP), and tobacco manufacturing and distribution (Altaldis – former Seita). The French law no. 2009-1503 of 8 December 2009 relating to the organization and the regulation of rail transport (called "ORTF law") opened up international passenger rail transport to competition. This law also created a sectoral regulator, the Regulatory Authority of Rail Activities (ARAF).
To comply with the new legislation, the SNCF has created a specific internal entity, “Gares et Connections," which on 1 January 2010 took over management of all passenger stations on the national rail network (3,026 passenger stations and stops). This allowed the first EU train to use French tracks for the first time on December 12, 2011. The train was part of the Franco-Italian public private partnership Thello. The electricity and gas companies (EDF/GDF) no longer have monopolies on production, distribution and sale of electricity and gas. However, EDF is the exclusive operator of nuclear plants, which generate close to 80 percent of the country's electricity. France's independent Energy Regulatory Commission (CREG) ensures open access to transmission and distribution networks for electricity and gas and provides recommendations to the government for gas and electricity tariffs. Market opening in Europe has continued to increase -- meaning that consumers are free to choose another supplier, although few have done so. The public transmission grid operator, Gestionnaire du Réseau de Transport d'Electricite (RTE), a division of EDF, continues to hold a monopoly position. While RTE remains wholly-owned by EDF, the utility no longer has a majority on RTE's supervisory board. In December 2010, EDF allocated half of RTE's shares to a portfolio of assets to cover future decommissioning costs of its 58 nuclear power reactors. Finally, France's mail market has been open to competition since February 2010, when France's postal service La Poste became a limited liability company owned by the state. La Poste dominates the market for letter mail but faces stiff competition in non-postal sectors. So far, 19 package and express delivery firms have been licensed by Arcep, the French telecoms regulatory authority which also oversees postal services.
Protection of Property Rights
France is a 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.
The French government has taken the lead in Europe on digital copyright protection with an updated version of its 2006 law on “Creation and the Internet” to combat online piracy. The new High Authority for the Distribution of Works and Protection of Rights on the Internet (Hadopi), designed to prevent illegal downloading and improve the availability of legal alternatives on the Internet, got underway in February 2010. As part of its "graduated response" procedure, Hadopi will issue up to three warnings to users who illegally download copyrighted material. If the users fail to comply with the request to stop their illegal activity, Hadopi will send their cases to a judge for review. The judge has the authority to cut off Internet service for up to one year. Under the new system, Internet service providers (ISPs) are responsible for sending warning messages on behalf of the Authority and implementing court sanctions. Web users are accountable for the fraudulent use of their Internet subscription, and the content industry must promote GOF-approved security devices such as fingerprinting and watermarking. Hadopi launched the government certification process in March 2011. Some 41 platforms legally offering over 115 million works, including music, motion pictures, video games, and books, have been certified so far.
Transparency of the Regulatory System
The French government has made considerable progress in recent years on transparency and accessibility of its regulatory system. A major reform in 2009 extended the investigative and decision-making powers of France's Competition Authority. Under current law, government ministers, companies, consumer organizations and trade associations may petition the Competition Authority to investigate anti-competitive practices. The Authority alone examines the impact of a merger transaction on competition, but the Minister of the Economy retains the power to request a new examination and reverse a merger transaction decision on grounds of general interest such as industrial development, the competitiveness of companies, or the maintenance of employment.
Of most concern to foreign companies has been standards-setting. With standards different from those in the United States, 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 regulated products. Information about these agreements can be found on the websites of the International Trade Administration (ITA), the International Bureau of Weights and Measures (BIPM), the National Institute of Standards and Technology (Department of Commerce), and the Office of Market Access and Compliance (Department of Commerce).
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.
Like most EU companies, French listed companies are required to use international accounting standards. 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.
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 142 foreign banks, 48 percent of which are non-EU banks (some with sizable branch networks), with total assets accounting for around 10 percent of total bank assets. Foreign companies have access to all banking services. Although some subsidies are available for home mortgages and small business financing, most loans are provided at market rates.
Increasingly, firms in France are bypassing banks and going directly to financial markets for their financing needs. The center of the French market is the Euronext stock exchange. Euronext Paris merged the three separate markets of the Paris exchange, the cash market (“Marche au Comptant”), the regulated market (“Second Marche”), and the growth segment (“Nouveau Marche”) in 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 335 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, venture capital, though not nearly as developed as in the United States or the United Kingdom, has become an increasingly important way for start-up firms to raise capital.
The NYSE merged with Euronext in March 2007. NYSE Euronext's equities markets – the New York Stock Exchange, NYSE Euronext, NYSE Amex, NYSE Alternext and NYSE Arca – represent 25 percent of the world's equities trading. The merger has increased international exposure to the European exchange and reduced trading fees. NYSE Euronext and Deutsche Boerse AG plan to merge, but they delayed until March 31, 2012 as the exchange operators try to persuade the European Commission’s Directorate General for Competition to approve the deal.
Foreigners held 42.4 percent of the capital of large publicly traded French companies (CAC 40) in December 2010 compared with 44.6 percent (revised) in 2009. For a foreign company incorporated in an OECD country to be listed on the NYSE Euronext stock exchange, it must choose a point of entry (Belgium, France, Portugal or the Netherlands) and be supported by a financial intermediary, usually a bank. A company seeking a listing on Alternext must have a listing sponsor whose status is granted by NYSE Euronext. 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]. 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/landing/regulation-12602-EN.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, with their executives sitting on each others' Board of Directors. 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 2005 regulation, 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 April 2009, AMF added two new thresholds of 15 percent and 25 percent of shares or voting rights to the existing 33 percent threshold that obliges a company to launch a mandatory tender offer. The 2010 banking and financial regulation law replaced the 33 percent threshold by a 30 percent threshold, which came into force February 1, 2011. Shareholders who held between 30 percent and 33.33 percent of shares or voting shares of a company between January 1, 2010 and February 1, 2011, have until February 1, 2012 to reduce their share holding to 30 percent and avoid making a mandatory offer. For companies listed on Alternext, regulations include mandatory tender offer thresholds of 50 percent and 95 percent of shares or voting rights. 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 whose country of origin does not apply reciprocal rules. The government also amended regulations to allow 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 at a discount in case of an unwanted takeover. New provisions include a reform of the French Financial Markets Authority’s 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.
Competition from State Owned Enterprises (SOEs)
SOEs dominate common carrier transportation (rail, bus, air) and are also active in energy, defense, and the media. Companies owned or controlled by the state behave largely like other companies in France and are subject to the same laws and tax code. The Boards of SOEs operate according to accepted French corporate governance principles as set out in the (private sector) AFEP-MEDEF Code of Corporate Governance updated in 2008. SOEs are required by law to publish an annual report. The French Court of Audit conducts financial audits on all entities in which the state holds a majority interest. The French government appoints representatives to the Boards of Directors of all companies in which it has significant share holdings and manages its portfolio interests through a special unit attached to the Economics Ministry. France's 2010 industrial policy measures strengthened the state's shareholding role in industry. GOF representation increased on corporate boards in which the GOF holds stakes. The executive board will have two GOF representatives, one from the government ministry related to the firm's sector (ecology, energy, and defense), and another from the Economy Ministry. CEOs of these companies are expected to meet annually with the relevant ministries to discuss the firm's investment strategy and leadership succession issues. The business strategies of public companies should be consistent with the nation's long-term vision of industrial development. In September 2010, the government appointed a Commissioner of State Shareholdings, a new position that reports directly to the Minister of Economy. The current Commissioner is the Director General of France's Shareholding Agency (APE) and the French Strategic Investment Fund (FSI). The FSI also aims to play a positive role as a long-term investor and support industrial competitiveness by promoting the development of key sectors.
Until the recent financial crisis, the French government was gradually reducing its stake in companies through privatization. The crisis has prompted a slight reversal of this general trend with President Sarkozy’s determination to invest in select small and medium-sized firms having or developing a key technological or "strategic" role in the French economy. These long-term (approximately 10 years) minority government stakes are typically used to leverage tandem, private-sector investments in the firms concerned. The government-sponsored financial institution, Caisse des Dépôts, plays an important role in administering these operations by the Strategic Investment Fund, which it co-owns with the government.
Electricité de France holds 85 percent of the overall French electricity market by volume even after it was opened to competition mid-2007. EDF is currently subject to several European Commission investigations for anti-competitive practices. EDF rivals claim that they cannot compete against the utility because they lack access to EDF’s nuclear power. In 2010, the GOF passed the NOME law (New Organization of the Electricity Market) that requires Electricité de France to sell a quarter of its base-load nuclear generated electricity (100 TWH) to competitors, under certain conditions. The reform, expected to take effect in 2011, is intended to promote competition while encouraging investment and preserving the benefit of the country's low-cost nuclear power plants for consumers. The Commission’s investigation will close out once the NOME law is fully implemented.
Corporate Social Responsibility (CSR)
The definition of Corporate Social Responsibility within France is broad, covering environmental, social, and transparency concerns in business operations and in interactions with stakeholders. France became a trailblazer in the European Union for responsible reporting and implementation when the French Parliament introduced the New Economic Regulations (NRE) in May 2001 and made annual sustainability reporting mandatory for all nationally listed companies in France. The NRE focuses on financial issues, such as increasing the transparency of take-over bids, improving corporate governance, and fortifying antitrust regulation, but several articles also legislate the disclosure of companies' "triple bottom line" performance, which takes into account not only financial but also social and environmental indicators. The NRE requires reporting in three key dimensions: human resources and labor standards (social benefits, health and safety, employment, equal opportunities, etc.); the community (local impact, local partnerships, etc.); and the environment (emissions, impact on biodiversity, resource consumption, etc.). While no official key performance indicator exists to monitor required disclosure, annual reports are available to the public and private-sector organizations.
Preventing discrimination through diversity management is an essential part of CSR. Government policies use both incentives and penalties to promote diversity and counter discrimination. Since 2009, firms of over 20 employees must comply with a 6% quota of disabled people or pay a fine. Similarly, since 2010, all firms of 50 employees or more must abide by a new legal requirement to employ “senior” workers (i.e. 50 years or more) or pay a penalty. At the same time, the government rewards companies with government certifications known as "diversity labels." These labels help improve the image of a company. As they are renewable every three years, they also help firms, especially very small ones, improve their anti-discrimination policies. The government has also established an independent authority to handle discrimination-related complaints. This High Authority known as the HALDE was merged in April 2011 into a new wider authority called the Defender of Rights, which covers all aspects of discrimination inside and outside the workplace.
Anti-American incidents are very 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 2005. 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.
Nevertheless, as the economic downturn worsened during 2009, some laid-off workers “detained” the managers of several U.S.-based companies in a bid to secure better severance packages. Similar incidents also took place at French, German and Japanese owned firms. President Sarkozy publicly criticized the workers for these actions. Detention of managers tapered off during 2010. There were no reported incidents in 2011.
The practice of “bossnapping” is generally deemed acceptable as long as workers refrain from violence and release the executive within a couple of days. The police rarely intervene and workers usually do not face criminal charges. In September 2011, however, a French court found Olivier Beasancenot, former head of the New Anti-Capitalist Party (NPA), and 10 other postal workers guilty of illegally holding (“sequestering”) managers at a French post office in May 2010. Besancenot and his co-defendants each received a suspended €1500 fine. Each defendant was also required to pay €500 in damages and interest and €150 in court costs. The defendants risked up to €75,000 in fines and five years in prison. The defendants will appeal the ruling according to media reports.
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. TI France also works with many French companies of all sizes to prevent corruption before they invest in foreign countries. In the ten years since the OECD Anti-Bribery Convention came into force, numerous investigations have been initiated in France and with several ensuing indictments, but no one has yet been convicted of bribing a foreign official. In April 10, 2010, the French press reported that a French investigating magistrate filed preliminary charges against oil giant Total for bribing Iraqi officials to secure supplies in connection with the UN Oil-For-Food Program. This is the first time a French company rather than its executives is being investigated on corruption charges under the OECD Anti-Bribery Convention. In its 2010 report on the enforcement of this Convention, Transparency International pointed to "moderate enforcement" by France and eight other signatory countries. The independent NGO noted that the main difficulty in enforcing the Convention remained the three-year statute of limitations, which the French government has pledged to extend to six years. Furthermore, violations committed abroad can only be investigated by French authorities at the request of foreign prosecutors following a complaint by the victim or the authorities of the country where the offense was committed, thus adding to the difficulty in bringing cases. Complicity in any offense committed by a French national abroad is investigated only if a final decision in foreign courts has been reached.
In addition, there is no plea bargaining or settlement mechanism in France, so there is no incentive for French companies to admit fault. The 1980 French blocking statute also prohibits the sharing of information with foreign governments outside mutual legal assistance channels, thus complicating efforts of companies seeking to cooperate with an investigation. There have been recent indictments and settlements in the United States against French companies, e.g., Technip and Alcatel-Lucent, but no corresponding proceedings in France itself.
At the same time, the OECD Working Group on Bribery in International Business Transactions continues to stress the commitment of French authorities to raise awareness among businesses and encourage public officials to advise the public prosecutor’s office of any legal violations that contravene the Convention. However, the OECD Working Group Committee recommended that French authorities make small and medium enterprises and accounting professionals more aware of the provisions of the Act of June 30, 2000, which transposed the OECD Anti-Bribery Convention into French law.
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).
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) 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 (both approved in April 2009) provides investors with a protective and consistent legal framework.
French BITs generally cover the following:
- Just and equitable treatment that is no less favorable than that accorded to domestic investors or the most favored investor from a third country;
- Restrictions on expropriation of investments, and requirements that, in the case of expropriation, compensation is prompt and adequate;
- Free transfers;
- The ability to resolve investor-state disputes through binding international arbitration.
OPIC and Other Investment Insurance Programs
Given France's high per capita income, investments in France do not qualify for investment insurance or guarantees offered by the Overseas Private Investment Corporation (OPIC). Further information can be found at [http://www.opic.gov].
France's private sector labor force is one of the country's strongest assets in attracting foreign investment, despite the relatively high cost of labor and rigid labor regulations.
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 reform program ("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 package 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 a number of legal reforms after 2008. In 2010, the government passed a law raising the minimum retirement age to 62 from 60. Although this ignited protests, most observers, including union officials, recognized the demographic and economic necessity of making the changes. According to new overtime rules incorporated in the government’s 2012 budget, employees will continue to enjoy a tax exemption on overtime hours. However, businesses will be required to pay more in social security taxes on overtime hours.
At the end of 2006, France adopted an employees’ shareholding law (“Loi sur la Participation”), which 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 “transport allowance” benefits employees who commute using public or private transportation. ([http://www.legifrance.gouv.fr]. The President's 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.
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 through its website: [http://www.douane.gouv.fr]. Since January 2004, all such zones have benefited from tax exemptions on corporate tax, payroll taxes, professional tax and real estate tax. Related information updated in January 2010 is available at the City Government web site:
More information on enterprise and investment zones is available from various sources for assistance to small and medium sized companies.
In 2004, France also created a system of "competitiveness clusters," regional associations of companies, research centers, and university labs that carry out R&D projects. These clusters were designed to encourage innovative businesses to keep R&D, high-value added production, and marketing in France. In 2010 eighteen of the 71 clusters claimed to be international or have "global" aspirations. The aerospace cluster is the only recognized actor in world markets, however. Most clusters lack an international presence because small and medium sized companies dominate membership; traditionally SMEs in France do not have strong export capacity or partnerships with international investors. In 2010, France's Industry Minister merged several clusters into six "inter-poles," to foster inter-industrial collaboration and synergies. The GOF also announced six new clusters in "eco-technologies," such as water/waste treatment, energy storage, and sustainable energy efficient buildings. The cluster system was extended to 2012 to allow new clusters to demonstrate their potential. Clusters benefit from income and social tax exemptions. Clusters involved in research and innovation also receive financial support from the state-owned investment bank Caisse des Dépôts. In all, the cluster system's Phase II (2009-2012) is set to receive a billion and half euros in state assistance during the 2009-2011 period ([See Directory of French clusters.]).
Foreign Investment Statistics
Foreign investment represents a significant percentage of production in many sectors. Rapid growth in new technologies has given way to renewed growth in traditional sectors: automobiles, metalworking, aerospace, capital goods, consultancy and services. Although the current economic environment will affect foreign investment, France remains one of the main destinations of foreign direct investment (FDI) in the world. According to UNCTAD estimates, France was the second largest recipient of foreign direct investment inflows in 2010, after the U.S., moving up from third place in 2007. Foreign direct investment inflows accounted for 0.7 percent of GDP in 2010. The U.S. remained one the largest sources of FDI in France, accounting for 40 percent of total direct investment inflows. Using Bank of France balance of payments data based on the historical book value of investment, U.S. firms accounted for 12.4 percent of the stock of foreign investment in 20109 (most recent data available), slightly up from 12.1 percent in 2009 (revised).
Using book value instead of 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.
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 value before the financial crisis might have been as much as five times the book reported in U.S. Department of Commerce data. However, because of the financial crisis, U.S. holdings of French stocks decreased significantly in 2008 and 2009. Based on recent estimates, U.S holdings in 2010 ($236 billion) recovered compared to the 2008 level ($212 billion), but remained below the 2009 level ($251 billion.) More than 1,200 affiliates of U.S. firms are established in France (2009 data). An estimated 600,000 jobs result from U.S.-originated investments.
In recent years foreign-controlled firms play a significant role in France's economy, accounting for around 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). 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
An updated list of recent U.S. investment projects may be found on [http://www.invest-in-france.org/north-america/successful-business-developments-in-France.html]. A list of over 400 foreign investors by industry can be found in the 2010 AmCham directory published by the:
American Chamber of Commerce in France
77, rue de Miromesnil
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”).
Note: Foreign FDI data published by the Bank of France have been revised in anticipation of a European norm to be implemented in 2014. According to the new norm, loans between companies of the same group are taken into account according to the residence of the group's headquarters. For example, a loan from a Dutch subsidiary of a French group to another subsidiary of the same group in France is no longer counted as a Dutch direct investment in France, but as a French disinvestment in the Netherlands. This method results in a significant decrease in direct investment flows and stocks compared to the previous estimates based on the IMF definition.