US investors rail against return of French 'protectionism' By John Thornhill in Paris
Published: January 28 2005 02:00
Every country has the right, if not the duty, to defend its strategic industrial interests. The question is: how should those interests be defined?
While US congressmen debate whether to block the takeover of International Business Machines' personal computer business by the Chinese Lenovo group, US investors abroad are complaining about increasing protectionism in France.
Some investors fear France, which has long shown interventionist instincts, is drawing an arbitrary squiggle rather than a clear line around its national interests. If that perception took hold it could damage efforts to sell France as an attractive destination for foreign direct investment.
Over recent months, a debate has been raging in France about the need to protect the country's "economic intelligence". The issue was first raised in 2003 in a report by Bernard Carayon, a parliamentary deputy from the ruling UMP party, which concluded that the French economy was vulnerable to predatory foreign companies, spies, and terrorist groups. The government had to do more, it said, to protect a national core of "economic intelligence".
Some of Mr Carayon's recommendations have already been incorporated into a legislative amendment, adopted by parliament last November, increasing the government's discretionary powers to block the takeover of strategically important French companies by foreign investors. Particular areas of sensitivity include aerospace, defence, nanotechnology, and information systems.
A senior French intelligence officer, Alain Juillet, has also been attached to the prime minister's office with the explicit task of protecting and promoting France's "economic intelligence".
Mr Carayon says France has been naive in failing to understand the ruthlessly competitive nature of international capitalism. He says some US investment funds, acting as front organisations for the Central Intelligence Agency, are determined to gain access to other countries' technological secrets.
However, some foreign investors argue that this change in the investment regime threatens a return to the country's dirigiste past.
Stephen Pierce, managing director of the American Chamber of Commerce in Paris, says the new French approach discriminates against investors from non-European Union countries.
"This is back to the arbitrary system of [President Valéry] Giscard d'Estaing when Coca-Cola was prevented from buying Chateau Margaux," he says. "Given the fact that they cannot stop a European investing in France, who do you suppose that this can be directed against? The Japanese and the Americans. On the one side you are saying please come and create jobs but on the other you are saying you cannot do things without permission. It is a complete paradox."
Government officials deny a return to dirigisme. They say they are simply making the rules more flexible to cope with a fast-changing world. A system of prior authorisation has been introduced to help guide foreign investors. France will continue to comply with EU competition rules.
Eric Morgan de Rivery, a competition expert at the Paris office of Jones Day, the law firm, says: "They want some leeway in a world where technology is evolving at a very fast pace. The rules will remain rather imprecise to allow a minister to gain some leeway for himself."
The chief minister exercising that leeway is Hervé Gaymard, the recently appointed finance minister. But foreign investors can count on a formidable advocate for their cause sitting at Mr Gaymard's dinner table most nights. Clara Gaymard, Hervé's wife, is in charge of the French Agency for Foreign Investment, responsible for improving France's investment environment.