French Republic Business Guide
Introduction
France, officially the French Republic (French: République Française), is a country whose metropolitan territory is located in Western Europe and that also comprises various overseas islands and territories located in other continents. Metropolitan France extends from the Mediterranean Sea to the English Channel and the North Sea, and from the Rhine to the Atlantic Ocean. French people often refer to Metropolitan France as L'Hexagone (The "Hexagon") because of the geometric shape of its territory.
France is bordered by Belgium, Luxembourg, Germany, Switzerland, Italy, Monaco, Andorra, and Spain. Due to its overseas departments, France also shares land borders with Brazil and Suriname (bordering French Guiana), and the Netherlands Antilles (bordering Saint-Martin). France is also linked to the United Kingdom by the Channel Tunnel, which passes underneath the English Channel.
The French Republic is a democracy that is organised as a unitary semi-presidential republic. It is a developed country with the sixth-largest economy in the world. Its main ideals are expressed in the Declaration of the Rights of Man and of the Citizen. France is one of the founding members of the European Union, and has the largest land area of all members. France is also a founding member of the United Nations, and a member of the Francophonie, the G8, and the Latin Union. It is one of the five permanent members of the United Nations Security Council wielding veto power, and it is also an acknowledged nuclear power. France is the most popular international tourist destination in the world, receiving over 75 million foreign tourists annually.
Economy
France is in the midst of transition from a well-to-do modern economy that has featured extensive government ownership and intervention to one that relies more on market mechanisms. The government has partially or fully privatized many large companies, banks, and insurers, and has ceded stakes in such leading firms as Air France, France Telecom, Renault, and Thales. It maintains a strong presence in some sectors, particularly power, public transport, and defense industries. The telecommunications sector is gradually being opened to competition. France's leaders remain committed to a capitalism in which they maintain social equity by means of laws, tax policies, and social spending that reduce income disparity and the impact of free markets on public health and welfare. The government in 2006 focused on introducing measures that attempt to boost employment through increased labor market flexibility; however, the population has remained opposed to labor reforms, hampering the government's ability to revitalize the economy. The tax burden remains one of the highest in Europe (nearly 50% of GDP in 2005). The lingering economic slowdown and inflexible budget items probably pushed the budget deficit above the eurozone's 3%-of-GDP limit in 2006; unemployment hovers near 9%. With at least 75 million foreign tourists per year, France is the most visited country in the world and maintains the third largest income in the world from tourism.
Market Overview
France and the U.S. are long-standing, close allies. Despite occasional differences of views, the U.S. and France work together on a broad range of trade, security and geopolitical issues. French presidential and legislative elections in mid-2007 will probably not change significantly the French-American relationship, though new personalities and policies certainly carry the potential for at least some evolution. France is the world’s sixth largest economy. With an annual GDP (USD 2.0 trillion in 2005) about one-fifth that of the United States, France was our ninth largest trading partner, accounting for USD 50.6 billion of U.S. exports of goods, services and income receipts in 2005, as reported in U.S. Department of Commerce data. France is a member of the G-8, the European Union, the World Trade Organization and the OECD, confirming its status as a leading economic player in the world:
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U.S. exports of goods to France in 2005 totaled USD 22.25 billion, up 5.2 percent from 2004, accounting for 2.45 percent of worldwide U.S. exports of goods and 12.1 percent of U.S. exports of goods to the European Union.
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U.S. exports of services to France in 2005 totaled USD 13.23 billion, up 1.1 percent from 2004, accounting for 3.5 percent of worldwide U.S. exports of services in 2005 and 10.2 percent of U.S. exports of services to the European Union.
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U.S. income receipts from France in 2005 totaled USD 15.15 billion, up 29 percent from 2004, accounting for 3.98 percent of worldwide U.S. income receipts in 2005 and 11.66 percent of U.S. income receipts from the European Union.
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U.S. imports of goods and services from France plus U.S. income payments to France in 2005 totaled USD 63.89 billion, up 13.5 percent from 2004 and accounting for 2.6 percent of overall U.S. imports and income payments in 2005.
France’s population of 63 million people has a high disposable income of USD 33,855 per capita. In 2005, French GDP grew by 1.4 percent in real terms. GDP in 2006 grew at about an estimated 2.1 percent, the best in several years. The outlook for is continued modest growth. Inflation remains low and under control at 1.7 percent for 2006.
Market Challenges
The French economy continues to struggle to grow at its potential, estimated at 2.3 percent per year. Sustaining growth at that rate will require further deregulation and reduction of the role of the state in the economy. The GOF succeeded in reducing its budget deficit in 2006, but needs to sustain that effort and also overcome public sector employees' resistance to pension reform and decentralization initiatives. The introduction of the euro and advancing globalization have increased competitive pressures on French companies and the French economy. Analysts, including those in the GOF, cite continued weak investment as evidence of the need to increase competitiveness through reforms, including further corporate tax cuts, simplification of administrative procedures, loosening of the highly inflexible labor market, and increased research and innovation. Widely publicized riots in the fall of 2005 in the suburbs of major French cities and student demonstrations in the spring of 2006 have increased the stakes and led to a number of proposals to fight unemployment, especially among youths, but have also highlighted the difficulties in reforming labor laws and integrating earlier waves of immigrants. Some progress, though partially through government employment programs, has been achieved, with unemployment having fallen to 8.6 percent at yearend 2006 from 10 percent in June 2005, but obviously more needs to be done. The current election cycle makes government actions difficult to predict as candidates jockey for position in the 2007 presidential race, which includes a wide array of parties and candidates in the first round.
France has a tradition of highly centralized administrative oversight of its essentially market-based economy. Total general government outlays amounts to about 54 percent of GDP, one of the highest ratios among OECD countries Ensuring that France's investment climate is attractive to foreign investors is a priority for the French government, which sees foreign investment as a way to create durable jobs and stimulate growth. Investment regulations are simple, and a range of financial incentives for foreign investors is available. Foreign investors say they are attracted to France by its skilled and productive labor force; its central location in Europe with its free movement of people, services, capital and goods (aided by the euro); good infrastructure; and its technology-oriented society. However, investors must contend with extensive government economic regulation and taxation, high social costs and a complex labor environment. Highly developed employee rights and benefits can make exit costs high for investors seeking to leave France.
Market Opportunities
Leading non-agricultural products considered to offer "best prospects" for U.S. business in France are (in order of market size): Aircraft and Parts, Computer Services, Computer Software, Industrial Chemicals, Travel and Tourism, Safety and Security Equipment, Computer and Peripherals, Telecommunications Equipment, Books & Publishing, Water Resources Equipment and Services, Medical Equipment, Automotive Parts Equipment, Telecommunications Services, Plastics, Agricultural Machinery and Equipment, Construction Equipment, Cosmetics, Education Services, Textile, Direct Marketing and E-Commerce Business to Consumer.
The French market for food products is mature, sophisticated and well served by suppliers from around the world. Additionally, increasing interest in American culture, younger consumers and changing lifestyles are contributing to France’s import demand for food products from the United States. Generally, high quality food products with an American image can find a niche in the French market, particularly if they can gain distribution through stores and supermarkets that specialize in U.S. or foreign foods. Significant market opportunities for consumer food/edible fishery products exist in a number of areas: fruit juices and soft drinks (including flavored spring waters), dried fruits and nuts, fresh fruits and vegetables (particularly tropical and exotic), frozen foods (both ready-to-eat meals and specialty products), snack foods, tree nuts, "ethnic" products, seafood (especially salmon and surimi), innovative dietetic and health products, organic products, soups, breakfast cereals and pet foods and treats. In addition, niche markets exist in France for candies, chocolate bars, wild rice and kosher foods that have shown rising demand. Market opportunities for U.S. exporters also exist for oilseeds, protein meals and other feeds, as well as for wood products and grains.
