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Country Commercial Guides FY 2000: France Report prepared by U.S. Embassy Paris, released July 1999 Note*

CHAPTER II. ECONOMIC TRENDS AND OUTLOOK

A. Major Trends and Outlook

In 1998, French GDP grew by 3.3% in real terms. This was the best performance in 10 years and a marked improvement over 2.1% real growth in 1997. Inflation remained low and under control. Stronger growth also contributed to a reduction in the unemployment rate to 11.5% by the end of the year. The financial services sector was the fastest growing sector, followed by other services sectors. The construction industry contracted by 0.5% in real terms.

The outlook for 1999 and 2000 is for continued growth, although at rates below that of 1998. The government projects growth in the range of 2.2%-2.5% in 1999. Much of the lower growth is due to a contraction in export growth rates in the wake of the Asian financial crisis.

Despite its positive short-term prospects, however, most observers believe the French economy is operating below its long-term potential. Reaching that potential will require continued deregulation and a reduction of the role of the state in the economy. Progress has been made, notably in privatization and reduction of budget deficits, but taxes remain the highest in the G-7 industrial countries and regulation of goods and labor markets is pervasive. The economic impact of the transition to the 35-hour workweek as of January 1, 2000 is uncertain, depending on the outcome of negotiations over wages and work schedules that are scheduled to conclude by the end of 1999. France's adoption, along with 10 other EU countries of the euro as their single currency will increase the competitive pressures on French companies and the French economy.

B. Principal Growth Sectors

In 1998 the five fastest growing sectors, as measured in real terms in the new 1995 accounting basis, were automobiles (12.9%), services to companies (6.1%), capital goods (5.7%), transport (4.5%) and consumer goods (3.7%). As measured in nominal terms these sectors represented 1.4, 15.5, 3.6, 4.4 and 3.6% of total value added, respectively.

C. Government Role in the Economy

France has a centuries-old tradition of highly centralized administrative and governmental control of its essentially market-based economy. In 1998, total general government outlays amounted to 54% of GDP. Considerable progress has been made in privatization, although the the government maintains a large presence in industries such as aeronautics, defense, banking, and telecommunications, and can still exert control over privatized firms (see attached discussion of "golden share" provisions in section VII).

D. Balance of Payments

France has run overall trade and current account surpluses in recent years. However, according to French government data, France runs a deficit in its trade with the United States. (U.S. data tell a somewhat different story, which is usually explained by the significant amounts of U.S. products that are re-exported to France from third countries.)

Among third country markets and suppliers, the United States is the second largest supplier of food and agricultural products to France, after Brazil, and the largest export market for French agricultural products outside of the European Union. According to French Customs data, the value of French agricultural exports (including spirits, manufactured tobacco, and wood and products) to the United States in 1998 was $1.9 billion, while the value of French agricultural imports (including spirits, manufactured tobacco and wood and products) from the United States during the same period was $980 million, leading to a positive agricultural trade surplus for France with the U.S. of $884 million

E. Trade Barriers

As a member of the European Union, France shares common tariff and, in many cases, non-tariff external barriers with other members of the Union. Product safety and sanitary standards affecting imports into France are increasingly established at the EU level. The United States and EU have negotiated Mutual Recognition Agreements covering certain product standards which should ease entry into EU and French markets for U.S. firms. Despite occasional highly publicized disagreements, the sizable bilateral trade between the U.S. and France is for the most part non-controversial.

G. Labor Force

France's private sector labor force is one of the country's strongest points in attracting foreign investment, combining high quality with competitive unit wage costs.

The labor code sets minimum standards for working conditions including the work week, overtime, vacation and personal leave. Other labor standards are contained in collective agreements, which are usually negotiated on a national or regional basis by the various unions and employers' associations. French absenteeism is modest by European standards and, in the private sector, peaceful labor relations have prevailed.

While the rate of unionization in France has steadily declined to about 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 work week. 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.

H. Major and Third Country Competitors

As the world's fourth largest economy, centrally located within the European Union, there is strong competition for market share in all French industrial and services sectors. American exporters to France generally face more competition from European companies than from Asian ones, although Japanese companies have successfully established a foothold in the French market, primarily through investment. German companies tend to be strong competitors, building on the many Franco-German joint ventures. Each sector has its own characteristics and should be carefully analyzed as part of a strategy to capture a share of the French market.

I. Infrastructure Situation

France's transportation infrastructure is among the most sophisticated in the world, benefiting from advanced technology and extraordinary investment by the government. The three main entry points for air-freight are the Orly and Charles de Gaulle airports in Paris and Lyon's Satolas airport. France has twelve major seaports, many of which are equipped for container ships. There is also an extensive highway and river-transport systems and a state-owned rail network that is among the most comprehensive and technologically advanced in the world.

Communications infrastructure is similarly advanced. Telephone lines blanket the country and there is easy access to the Internet via French and foreign service providers. The French "Minitel" telephone based computer network is also widespread and provides many consumer services. France is behind the U.S. and some other countries in the use of personal computers and the Internet. The government is trying to promote better use of information technologies.

J. Major Infrastructure Projects Underway in France

1. Construction projects:
a. Disneyland Paris expansion project (estimated at USD 670)
b. Fast train project (TGV-Est) between Paris and Strasbourg
c. Renovation of the Mont Blanc tunnel (estimated at USD 250 million)