Cablegate: Scenesetter for Eeb a/S Jose Fernandez

DE RUEHFR #1611/01 3370742
P 030742Z DEC 09





E.O. 12958: N/A
SUBJECT: Scenesetter for EEB A/S Jose Fernandez

PARIS 00001611 001.2 OF 003

1. (SBU) Mission France warmly welcomes your visit on December 7-8.
You will arrive half way through President Nicolas Sarkozy's
five-year term, a period marked by strong coordination between the
U.S. and France on key strategic issues. The financial crisis and
subsequent G20 response, as well as the lead-up to the Copenhagen
climate change summit, have tested this relationship and shown that
we can find ways to work together despite fundamental differences on
some issues.

US-French Relations
2. (SBU) Since the election of President Sarkozy in 2007 and the
election of President Obama in 2008, the U.S.-French bilateral
relationship has become arguably the best it has ever been, with a
robust political relationship buoyed by renewed support for the U.S.
in public opinion. Sarkozy is a fierce advocate for French
interests; is committed to pushing France forward as a global
leader; and, believes he can best advance French interests by
working in tandem with the United States rather than in opposition
to us. Politically robust government-to-government relations do not
mean, however, that France always aligns itself with the United
States. Sarkozy equates the health of the relationship with the
strength of U.S.-French political and strategic cooperation in other
parts of the world, rather than with the economic relationship.

3. (SBU) Franco-American economic ties are robust. Bilateral
trade, investment and affiliate sales amount to an estimated $1.3
billion per day. France is the United States' 8th largest trade
partner, and the United States is France's 6th largest trade
partner. The U.S. is the top destination for French foreign
investment, with direct investment stock of $163 billion. There are
approximately 2,300 French subsidiaries in the U.S. that provide
more than 520,000 jobs and generate about $235 billion in turnover.
The U.S. is in turn the largest foreign investor in France, with $75
billion in investment , and turnover of about $228 billion. U.S.
firms employ 650,000 people in France. This Embassy is committed to
further enhancing these economic ties.

State of the French Economy
4. (SBU) France's economy has outperformed most other EU member
states during the financial crisis, due largely to France's
extensive social safety net (e.g. long-lasting unemployment benefits
and training programs) which acts as an automatic stabilizer. But
government stimulus has also played an important role. The Sarkozy
administration pushed through a 26 billion euro stimulus package,
which -- with automatic stabilizers -- equals 2.5 percent of gross
domestic product (GDP). More recently, the government announced a
35 billion euro "grand emprunt" (a "recovery bond" offering) to
stimulate research and investment in innovative industries. The
French economy grew at an annual rate of 1.2 percent in the second
quarter, driven largely by a decline in the trade deficit, and by
government consumption. Unemployment increased to 9.1 percent on
average, compared to 7.4 percent in 2008, with a 23.9percent youth
unemployment rate. To date, secondary effects of lower employment
rates have not significantly weakened what until now has been
remarkably resilient consumer demand. The dark side of all this,
however, is the soaring budget deficit, which has doubled and will
reach 8.2 percent of GDP this year. . Because of this, Sarkozy
continues to press for reforms that reduce the burden of the state
(reducing the civil service by attrition, consolidating sub-national
administrative layers) as well as encourage small and medium-sized
businesses (reduced paperwork, tax exemptions, financing) and
provide investment incentives.

The G20 Agenda
5. (SBU) France strongly supports the G20 process as the premier
forum for treating global economic issues, but takes a sharply
different stance on some G20 issues than the United States. The
French have aggressively advocated for improved global economic
governance (tighter regulation of the financial sector, and
international norms to discourage excessive bonuses for bank
executives), and have been critical of the U.S. or "Anglo-Saxon"
economic model, which they argue has been discredited by the crisis
as dangerously underregulated. Before the G20 summit in
Pittsburgh, France, along with Germany, sought a common EU position
on financial regulation in an unsuccessful attempt to influence the
outcome of the summit. France has publicly downplayed its own
reliance on the social safety net and government stimulus programs
to support economic demand. Despite its support for the G20, France
believes there may well be a continuing role for the G8 in certain
areas, and senior officials have told us that G8 members have to
look carefully at what to do with the many issues and partners
involved in the G7, G8 and other formats. France will take over
lead for the G8 and G20 in 2011.

Climate Change

PARIS 00001611 002.2 OF 003

6. (SBU) The environment is a signature issue for the Sarkozy
government, which created a new "super-ministry" of sustainable
development, consolidating the ministry-equivalents of energy,
infrastructure, transport and environment into a single body. The
goal was to internalize environmental factors into decision-making
on these policies. Last year, France successfully guided EU member
state negotiations on the EU's climate change and energy package,
committing the EU to reduce its greenhouse gas emissions by 20
percent by 2020 compared to 1990 levels. The French, especially
President Sarkozy and Environment Minister Borloo, were critical of
the USG approach to climate change and Copenhagen, saying that the
U.S. legislative process is too slow. They also charged that the
Waxman-Markey cap-and-trade bill will produce insufficient
reductions by 2020. France has meanwhile sought to forge alliances
to achieve binding agreements at Copenhagen. The Sarkozy
administration has introduced a bill into the French Parliament to
implement a carbon tax starting from January 1, 2010.

7. (SBU) France pushed back hard against emerging economies at the
July 2008 Doha talks over the issue of market access, but then
reversed itself at the end of the year, advocating rapid conclusion
of the Doha package. President Sarkozy has called for conclusion of
the round to avoid any further steep declines in trade. France
fears that emerging economies (India and China) could legally raise
their current low applied tariff rates to the higher bound tariff
rates. Locking in lower rates seems to be the GOF's priority , even
if the current deal offers little else. French officials have also
publicly blamed the U.S. for the failure to reach agreement on Doha.
We have made clear that what is on the table is not sellable to
Congress. Privately, French officials complain that they do not
understand the United State's current objectives or negotiating
strategy on Doha.

Intellectual Property Rights
8. (SBU) The French government is often at the cutting edge of
intellectual property protection in Europe and recently enacted a
controversial "graduated response" law (the UK and EU drafted
similar laws) that provides for an illegal downloader to lose
internet access for up to one year after two warnings. French
courts also back rights holders in IPR cases, such as Louis
Vuitton's successful suits against Ebay and Google over copyright
infringement, and French publishers will likely be successful in
their current suit over the Google Books program. With an immense
amount of intellectual property to protect and one of the worst
illegal download rates in the Europe, the French will continue to
push the envelope in Europe in IPR enforcement.

Bilateral Trade and Investment Issues
9. (SBU) Several bilateral trade and investment issues have
captured the attention of leaders on both sides. Senior French
business officials have complained that the U.S. Air Force's KC-X
Tanker draft procurement proposal is unfair and stacked in favor of
Boeing. The Air Force reopened its bidding process after the
original selection of Northrup-Grumman /EADS was overturned.
French business officials complain that the new draft RFP sets
standards that heavily favor Boeing's offer. Both aircraft would
be assembled in the United States and both have significant American

10. (SBU) EDF recently bought a 49.9 percent stake in the existing
nuclear assets (five reactors) of Constellation Energy Nuclear Group
(CEG), based in Baltimore, Maryland. After rocky negotiations over
the summer, the State of Maryland approved the acquisition in early
November. It is worth mentioning, however, that the new CEO of EDF,
Henri Proglio, told the press he has not yet fully endorsed the move
and questions if it was in the company's best interests.

11. (SBU) GE France lost it's 4 billion euro bid to buy Areva T&D
(Transmission and Development), the non-nuclear arm of Areva Group.
The other bidders were Toshiba, backed by the Japanese sovereign
fund INCJ, and a joint bid by Alstom and Schneider Electric. Areva
(or more likely President Sarkozy) chose the Alstom/Schneider
Electric French bid, despite indications that its initial offer was
inferior from several standpoints.

Agricultural Issues
12. (SBU) Once a leading supporter of agricultural biotech in
Europe, the Sarkozy administration has banned the cultivation of
genetically modified organisms (GMOs). Some GMO imports are
permitted as animal feed subject to approval by the European
Commission. However, Europe's zero-tolerance for traces of GMOs
caused U.S. soy shipments to be blocked this year at European ports
when minute traces of GMO corn-dust was found in soy shipments. The
European Commission resolved the issue by approving the relevant

PARIS 00001611 003.2 OF 003

biotech products for importation at the end of November. This issue
is likely to recur with new biotech products.

Paris Club
14. (U) The French Finance Ministry provides the secretariat
services for the "Paris Club," which meets 10 times each year under
French chairmanship. Founded as an ad-hoc group of creditor
governments during the 1956 Argentine debt crisis, the Paris Club
is an informal group of 19 creditor governments who jointly
negotiate with debtor governments. This ranges from simple debt
rescheduling to debt relief under the HIPC (Highly Indebted Poor
Countries) initiative and is predicated upon the existence of an
active IMF economic adjustment program.

Development Assistance and Food Security
15. (SBU) France is a major provider of development assistance
around the world. Although we have some different priorities, USAID
and French development agencies cooperate well in the field, and
there is great potential for coordination and cooperation on
development aid issues globally. President Sarkozy was the first
world leader (in 2008) to call for a global partnership on food
security, and France will be an active partner in carrying out the
food security commitments made at the G8 summit in L'Aquila Italy in
May 2008, which Secretary Clinton has endorsed as a U.S. diplomatic

16. (SBU) France makes significant contributions to the NATO -led
International Security Assistance Force in Afghanistan, (ISAF)
including deployment of troops and now French gendarmes for police
training, and will provide approximately 40-45 million euros of
development assistance in gendarme forces, embedded training
programs, and bilateral assistance in Kapisa and Surobi provinces,
the regions where their troops are engaged. France has not yet
contributed to the development trust funds established to stand up
and sustain the Afghan National Army and law enforcement forces
training (ANA and LOFTA funds).


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