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Cablegate: France: Rethinking Industrial Policy

VZCZCXRO2664
RR RUEHIK
DE RUEHFR #1451/01 3011652
ZNR UUUUU ZZH
R 281652Z OCT 09
FM AMEMBASSY PARIS
TO RUEHC/SECSTATE WASHDC 7435
RUEHZL/EUROPEAN POLITICAL COLLECTIVE

UNCLAS SECTION 01 OF 02 PARIS 001451

SENSITIVE
NOT FOR INTERNET DISTRIBUTION

SIPDIS

E.O. 19528: N/A
TAGS: ECON EIND EFIN ETRD FR
SUBJECT: FRANCE: RETHINKING INDUSTRIAL POLICY

Ref: A. Paris 1216
B. Paris 0493

PARIS 00001451 001.2 OF 002


1. (SBU) Summary. President Sarkozy has initiated a national debate
on the country's long-term industrial policy. After a three and half
month consultative process starting this month with small/medium
sized enterprises and industries (SME/SMIs), unions, local
governments, experts, and the general public, the government of
France (GOF) will consider recommendations on designating innovative
strategic sectors, as well as industries in need of reform or
workforce renewal. The debate's findings should fold into other
state-led, long-term planning initiatives that aim to keep jobs,
industries, and know-how at home. End summary.

The "State is Back"
-------------------

2. (SBU) Sylvain Roques, industrial policy advisor to the Minister
of Industry Christian Estrosi, told us that Sarkozy is fully backing
the "Estates-General for Industry" (EGI) initiative, which Roques
said marks the "return of the state" in industrial policy. When
Sarkozy announced the EGI on October 5, he said that the "market is
important" but the "state's duty is also to have an industrial
policy". Over the course of 3-5 years, Estrosi's office and his
superior, Minister of Economy Christian Lagarde, will introduce
incentives to promote the development side of R and D in key
industries (bio and nanotechnologies, eco-industries, fiber optics,
electric vehicles), Roques stated. Estrosi cited two examples: an
"innovation tax credit," that would complement the existing research
tax credit and help companies through the period between patent
filing and production launching, and subsidized loans for investments
in eco-friendly industrial processes. Moreover, Estrosi wants to
promote interaction between France's most competitive industrial
sectors, for example, between renewable energy and water treatment,
or between the medical device and health care service industries.

From out- to in-sourcing
------------------------

3. (SBU) GOF efforts will also focus on sectors in need of "reform,
restructuring, and workforce retraining", Roques added. In
particular, the GOF is pushing for "re-localization" (in-sourcing),
in the automobile and luxury goods sectors (Chanel, Hermes) because
the GOF wants to bring jobs back to France, he stressed. Opening the
EGI, Estrosi said he would focus his efforts on financial and tax
assistance for the relocation of production facilities to France, and
for R and D (1.5 billion euros to bolster R and D in competitive
industrial sectors for 2009-2011). Companies will also be offered
incentives worth up to 15,000 euros per job repatriated to France,
Estrosi continued, but details are scarce and will depend on several
factors, including company location. Roques told us the number of
jobs eligible for such incentives is still under review.

4. (SBU) In an October 5 speech, President Sarkozy said he was
adamant about reducing outsourcing. He noted that in 2007, France's
principal automobile maker (Renault), in which the GOF has a 17
percent stake, had 75 percent of its labor force outside France: "I
want that reality to change...it is not normal to produce cars abroad
when we sell them in France. Outsourcing is not something we can
accept or want. That is not industrial development", Sarkozy stated.
(Note: outsourcing has increased in France since 2006. Official
figures put the loss of industrial jobs from 2002 to 2006 at 500,000,
of which 3-10 percent were due to outsourcing. End note.)

The Estates-General for Industry process (EGI)
---------------------------------------------

5. (U) Akin to the "Grenelle process" for environmental policy, the
EGI is a nation-wide consultation aimed at generating ideas and
support for revamping industrial policy. For the next several
months, the GOF will consult SME/SMIs, unions, associations,
independent experts, and local and regional governments to designate
the country's most strategic industrial sectors for development. A
National Committee for the EGI (NCEGI), plus ten working groups, will
lead different sectoral and cross-sectoral discussions. Regional
workshops should start operating by mid-November and will release
their findings mid-December. A special website will amass views from
the general public. This consultative process ends in February 2010
at which time the NCEGI will present its recommendations to the GOF
and a "National Convention" will be held. President Sarkozy then
plans to announce the country's "new industrial policy".

Break-down of EGI themes
-----------------------

6. (U) Minister Estrosi outlined the major EGI themes in an October
15 speech.

-- Innovation and entrepreneurship to boost small enterprise growth;
-- Partnerships and networking (among distributors, sub-contractors,

PARIS 00001451 002.2 OF 002


international associates);
-- Employment and training;
-- Competition and green growth;
-- Access to financing.

SME/SMI- the weak link
----------------------

7. (SBU) Embassy contacts underscore that it is difficult for
SME/SMIs in France to grow into large companies. Our contacts
stressed the need for French SME/SMIs need to reach a "critical mass
of 500 employees." Sandrine Bourgogne, Deputy Secretary General of
the French small and medium business confederation told us that
French SME/SMIs stagnate and fail to grow for a number of reasons: 1.
high fiscal and administrative costs for companies with more than
nine employees, 2. management with limited international training and
experience, and disinclined to bring in foreign investors, 3. limited
export activity, and 4. dependency of supplier companies on large
domestic distributors/buyers.

8. (SBU) Marcel de la Haye, Estrosi's advisor on international
affairs, stressed the problem of capital. He said French SME/SMIs
traditionally have low capital/cash reserves that limits their
ability to cover operating costs, social charges, and taxes, not to
mention investment and R and D. The GOF hopes EGI initiatives will
help boost SME/SMI's innovation and competitiveness, a point Sarkozy
has made in every speech on industrial policy in the last year.
However, the GOF can't do everything, Roques stressed, implying it
will have to make choices about what industries to promote or
re-orient. For now, the most pressing goal is to break the "500
employee glass ceiling" and keep SME/SMI know-how in France, Roques
concluded.

Special Debt Issue
------------------

9. (SBU) The EGI will fold into the priorities of the upcoming
special debt issue, or "Grand emprunt", Roques noted. Planned for
the beginning of 2010, the special debt issue will provide financing
for long-term projects. The special debt issue, along with the EGI,
and the GOF's recovery plan should be consistent and mutually
reinforcing, Roques explained. These state-led initiatives will
promote growth and R and D in key sectors and innovative
technologies, while reorienting and reforming others, all of which
must also comply with the GOF sustainable development mandate, Roques
concluded.

Rocky Start to the EGI
----------------------

10. (SBU) The EGI was originally proposed by Bernard Thibault, chief
of the leftist labor union Confederation generale du travail (CGT),
and subsequently adopted by President Sarkozy. Other labor and
employer unions have agreed to participate in the EGI, but have
called for vigilance on how the GOF proceeds with the process. On
October 22, an estimated 13,000 workers (according to police, 30,000
according to the CGT) demonstrated in Paris against job cuts and over
fears of future changes to industrial policy that the EGI might bring
about. Thibault called on employees from industries hit by the
economic downturn (metal, textile, chemical, paper) to speak out for
an EGI that leads to greater job stability and reduced outsourcing.
The CGT leader has been a long-time advocate of an EGI but recalled
the government's poor performance this summer regarding the Molex
labor dispute (Ref A). The Force ouvriere (FO) union also expressed
doubts the EGI would be a meaningful exercise, or that Thibault and
the CGT could effectively represent labor's interests.

Comment
-------

11. (SBU) For the EGI to get off the ground, the GOF must not only
be willing to step forward and make strategic choices, but it must
also get business, labor and, to some extent, finance to engage and
buy in to its approach. Although the idea of an EGI originated with
a left-wing labor union, Sarkozy is lending his political weight to
the initiative, as well as his own spin. Although the French are
used to the intervention of a strong state (Ref B), Sarkozy will
still have difficulty achieving consensus on industrial policy.
However, by consulting a broad range of stakeholders, Sarkozy will
have made a visible effort at inclusiveness, while maintaining the
ability to put his imprint on industrial policy.

RIVKIN

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