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.  The Finance Ministry examined only 30 cases in 2006 and all were 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 (siège 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, des Finances et de l'Industrie,
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:   or (+33) 1 40-04-04-04
Information may be found on the Finance Ministry’s website: http://www.minefe.gouv.fr

AFII’s website http://www.investinfrance.org/NorthAmerica 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.

Informal Impediments to Foreign Investors

France has implemented some market-oriented economic reforms that increase the attractiveness of the French economy to foreign investors, and offers 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, after more than a decade of reforms, 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.

The process of deregulation is far from complete and the state remains very involved in economic life.  There is extensive regulation of business and labor markets.  Also, the corporate tax rates are high in comparison to other leading industrial countries. Foreign investors most often cite complicated and pervasive labor regulation, 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 government is taking measures to make the law less rigid and is seeking to introduce more flexibility in employment contracts (See D. Labor).

By raising the minimum wage (Salaire Minimum Interprofessionnel de Croissance – SMIC) an average of 2.1 percent (effective July 2007), the Government provided low-wage workers a real 0.9 percent boost in purchasing power. Despite the increase in the minimum wage, base gross wages in the private sector are expected to increase at a slightly lower rate compared with last year (2.7 percent versus 2.8 percent) as high unemployment restrains wage demands. 

The government decision to cut income and payroll taxes in 2007 should make France a more attractive place for both French and foreign investment.  Finance Minister Lagarde is said to be weighing further tax system changes, including a possible “social” value-added tax increase to finance a payroll tax cuts.     

The French have two social security taxes, the "Contribution Sociale Généralisée" (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.gouv.fr/publications-videotheque/bulletins-officiels/annee-2001/bulletin-officiel-no-2001-09-du-20-mai-2001-2758.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. 
 
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”).

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, Thalès (formerly Thomson CSF), Renault, and Thomson through TSA).  Smaller projects, including the privatization of SAPRR (Paris-Rhine-Rhône 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 authorizes 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 deal is still pending.  After a long selection process in 2005, toll-road companies ASF, APRR and Sanef were privatized in 2006.  The government reduced its stake in Aéroports de Paris.  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 2008, the government has stakes in listed companies including Aéroports de Paris (68.38 percent), Air France KLM (16.67 percent), CNP Assurances (1.09 percent), EADS (15.04 percent), EDF (84.85 percent), France Telecom (27.35 percent), Gaz de France (79.78 percent), Renault (15.01 percent), Safran (30.42 percent), and Thalès (27.30 percent), and in unlisted companies including SNCF, RATP, CDC and La Banque Postale, and controls 1,143 smaller firms in a variety of sectors. 

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.

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:

1. 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:

2. To name up to two non-voting members to the firm's board of directors; and

3. 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 includes 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 has also considered retaining a golden share in the privatization 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 in France remain slightly above 2.1 percent of GDP.  The GOF has confirmed its commitment to increase total R&D spending to 3 percent of GDP by 2010 (consistent with the EU’s “Lisbon agenda” goals), with two percent coming from the private sector.  The French government relies on increased tax credits and incentives for the development of new investment structures to boost industrial research.  Four sectors (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 GOF completed in 2006 an ambitious effort to reform its R&D strategy, organization, evaluation, and funding.  The new system attempts to inculcate competition for government-funded research.  The Research and Innovation Bill, adopted in April 2006, reinforces science-industry relations and promotes greater strategic direction.  In mid-2007, the government gave a new impulse to government-funded research via a new university governance law.  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 will benefit 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,” two new types of cooperation.

“Research and higher education” is the top priority of the 2008 government budget, benefiting from a 1.8 billion euro increase compared to 2007.  “Research and higher education” accounts for 8.6 percent of total budget spending. 

 
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; nanotechnologies; and space.

Visas, Work Requirements

The government of France requires that foreign citizens 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.ambafrance-us.org/fr/ambassade/consulats.asp.  For more information on the foreign trader's card, please consult the Invest in France agency Website 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.  In addition, a foreigner's ability to practice a profession may be curtailed 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.  Additional changes are expected.  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) it 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

Investment Incentives

France offers a range of financial incentives to foreign investors.  The following information reflects incentives, as they existed at time of this writing. The government has a broad range of investment and competitiveness measures in the legislative pipeline.

France's domestic planning and investment promotion agency, DIACT (Délégation Interministérielle a l’Aménagement 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 DATAR/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
San Francisco,
CA 94108
Tel: (415) 781 0986
Fax: (415) 781 0987

Midwestern States

IFANA Chicago
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'Aménagement 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.  Firms that maintain employment when the investment is significant may also collect PAT.  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 2002 Local Democracy Law (Démocratie de proximité) http://www.legifrance.gouv.fr gives regional councils (Conseils Régionaux) 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 Régional" has it own website, which can be found with any Internet search engine using "conseil régional" 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), 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.  On October 16, 2007, the French Parliament approved a GOF bill on counterfeiting which transposes into French law the April 29, 2004 EU Directive on the enforcement of intellectual property rights.  On April 6, the GOF issued an implementing decree regarding the interoperability articles of the French Digital Copyright Law of August 2006.  The decree established a Technical Measures Regulation Authority (TMRA), which will decide on issues of interoperability of digital rights management (DRM) systems, as well as rights to copy original works for private use.  The law and decree create an uncertain environment for proprietary DRM systems in France.  Article 15 of the digital copyright law could result in source code disclosure obligations on technical protection measures and security software providers who make their products available in France, though implementing regulations have yet to be finalized.  In order to strengthen French policy on illegal downloading of music and movies, a commission appointed by President Sarkozy presented a series of proposals in November 2007 to prevent piracy and to stimulate the growth of a legal digital music and movie market.  A number of these proposals should become law in 2008.

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 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 Unfair Competition Council 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 importance of cooperation on regulatory issues to the transatlantic business environment was further underscored during the French American Business Council (FABC), which met in November 6-7, 2007 in Washington.  The Transatlantic Economic Council, established last spring at U.S.-EU annual Summit, and which met on November 9, 2007, will also focus 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.   

France is actively involved in the effort to create a system of internationally accepted accounting standards (to learn more, go to http://www.iasb.org.uk/ or search the SEC's website at http://www.sec.gov/.  Most EU listed companies were required to use international accounting standards from 2005.  French market and banking regulators enhanced and developed cooperation with their foreign counterparts.  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 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 2006.  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).  The changes are aimed at improving liquidity and visibility of small- and medium-sized companies.   A financial futures market, the "Marche a Terme des Instruments Financiers," commonly known as the MATIF, trades 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.  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.”  The NYSE merged with Euronext in March 2007.  As of December 2007, NYSE Euronext listed 4,566 companies, with a total capitalization of USD 2,944 billion.  The merger has increased international exposure to the European exchange and reduced trading fees, which should attract more investors.  

Foreigners hold more than 40 percent 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, a French bank or broker must sponsor it.  It must also prepare a French language prospectus to get a permit from "Autorité des Marches 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 Website http://www.amf-france.org, which merged with the COB Website 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.
 
Cross-Shareholding

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 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 a foreign company that does not apply reciprocal rules targets them.  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 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 against officials from French oil company Total for the bribery of foreign civil servants, a criminal offence in France since 2000, when the GOF ratified the OECD Anti-Bribery Convention and enacted implementing legislation to enforce its provisions.  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 réciproques 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, Moldavia, 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.

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.

Labor

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 will have to be approved by Parliament. 

The President' proposal to streamline assistance to job-seekers by merging France's national job placement and unemployment agencies is currently before Parliament, with the government hoping that the bill will be enacted before the March 2008 municipal elections.

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 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 within a pole of competitiveness.  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 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-Trade Zones/Free Ports

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 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 Website: 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 http://www.InvestinFrance.org http://www.diact.gouv.fr http://www.oseo.fr for assistance to small and medium sized companies.

France has 71 competitiveness clusters including projects with international ties and with related missions.  The clusters are designed to reinforce innovation and encourage innovative businesses to remain in France. They will benefit from income and social tax exemptions http://www.competitivite.gouv.fr.  Clusters involved in research and innovation will also benefit from financial support from the state-owned investment bank, Caisse des Dépôts.
 

Foreign Direct 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.  France has remained one of the main destinations of foreign direct investment (FDI).  According to recent UNCTAD’s classification, France is the third recipient of foreign direct investment inflows due to a 57 percent rebound in 2007.  Foreign direct investment inflows accounted for 3.6 percent of GDP.  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 11.8 percent of the stock of foreign investment in 2005 (most recent data available), slightly down from 12.2 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 U.S. citizens may ultimately control it.  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
Tel:  01.42.92.42.92

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 60.9 billion (or USD 65.9 billion for 2006) book value for 2005 reported in U.S. Department of Commerce data http://bea.gov search in International). About 1,326 affiliates of U.S. firms are established in France.  Around 619,900 jobs result from U.S.-originated investments.

Today, foreign-controlled firms play a significant role in France's economy, accounting for 15 percent of capital expenditures, 30 percent of exports, and 17 percent of value added.

An updated list of recent U.S. investment projects or may be found on http://www.invest-in-france.org/north-america/successful-business-developments-in-France.html.

Lists of foreign investors by industry can be found at the:
American Chamber of Commerce in France
156, boulevard Haussmann
75008 Paris
Tel: 01 56 43 45 67 Fax: 01 56 43 45 60
http://www.amchamfrance.org.   Useful information on the first 1000 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].  

Web Resources

French legislation: http://www.legifrance.gouv.fr

Finance Ministry’s website: http://www.minefe.gouv.fr

French regulations for foreign investment: http://www.investinfrance.org/NorthAmerica  http://www.inforeg.CCIP.fr

Income tax convention between the United States and France to avoid double taxation and prevent tax evasion:
http://www.ustreas.gov/offices/tax-policy/library/franceegprotocol04.pdf

Foreign trader's card re establishing residence in France: http://www.ambafrance-us.org/fr/ambassade/consulats.asp
http://www.invest-in-france.org/north-america/en/launching-your-project.html

French financial market: http://www.amf-france.org
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.

Urban enterprise zones: http://www.legifrance.gouv.fr/affichTexte.do?cidTexte=JORFTEXT000000641190&dateTexte=.
http://www.zones-franches.org http://www.InvestinFrance.org http://www.diact.gouv.fr

Assistance to small and medium sized companies: http://www.oseo.fr