This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 PARIS 006995 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR EB/OIA - WES SCHOLZ AND JAMES ROSELL 
TREASURY FOR OFFICE OF INTERNATIONAL INVESTMENT - GAY SILLS 
STATE PASS USTR 
 
E.O. 12958:  N/A 
TAGS: EINV ETRD ECON FR EUN
SUBJECT: FOREIGN INVESTMENT & NATIONAL SECURITY CONFERENCE 
 
 
SENSITIVE BUT UNCLASSIFIED, NOT FOR INTERNET DISTRIBUTION 
 
Refs: A) Paris 5441 
      B) Paris 6570 
 
SUMMARY 
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¶1.  (SBU) A parliamentary conference on foreign investment 
and national security on October 10 has helped to inject 
some market sense into Prime Minister Villepin's "economic 
patriotism" agenda, although it also highlighted 
shortcomings in the French approach to protecting firms from 
foreign investment.  Separately, the PM named Bernard 
Carayon, the organizer of the conference, to lead a mission 
to implement reforms needed to protect national security. 
We met with Carayon to voice our concerns about 
protectionist trends, participated in his conference, and 
plan to assist him as he undertakes his new mission.  END 
SUMMARY. 
 
Conference Highlights 
--------------------- 
¶2.  (SBU) Bernard Carayon (UMP) organized a conference 
October 10 at the National Assembly (the lower chamber of 
Congress) to discuss foreign investment and national 
security.  Carayon is a leading protagonist of French 
economic intelligence, which forms a key part of the 
"economic patriotism" that Prime Minister Villepin has been 
pushing as part of his economic and security agenda. 
Carayon prepared a report in 2003 with a number of 
recommendations for the GOF. 
 
¶3.  (SBU) Before the conference, the Ambassador made a point 
to meet with Carayon to advocate the USG view of economic 
patriotism (e.g., a market-based approach), and the effort 
paid dividends at the conference.  Although the conference 
examined US practices in depth, Carayon emphasized that 
economic patriotism does not translate into protectionism. 
In his opening remarks at the conference, he mentioned the 
recent failed Chinese bid for UNOCAL, as well as the ongoing 
Boeing-Airbus trade dispute, but said he hoped the lessons 
learned would be applied in the fight by countries that 
share the same values against the new threats to collective 
security, such as terrorism. 
 
¶4.  (U) French Minister of Defense Michele Alliot-Marie 
opened the conference in a speech assailing protectionism. 
She noted protectionism is counter-productive, and that in 
defense matters, future needs must be considered.  She 
argued that France should control its spending, and select 
its strategic interests carefully.  She argued against 
creating any new bureaucracy to screen foreign investments, 
and urged creating a European industrial strategy.  She 
emphasized that France needs research and technology, which 
she was pursuing in defense.  Econ M/C followed with an 
explanation of US investment policy and national security 
review mechanisms, stressing the U.S. system's openness and 
efficiency. 
 
¶5.  (U) The conference had three thematic panels, one on 
balancing interests, one on the US and French systems, and 
one on practical considerations. 
 
¶6.  (U) At the first panel, one member of the National 
Assembly, Axel Poniatowski (UMP), argued that the US is more 
protectionist than the EU, tax schemes such as the Foreign 
Sales Corporation (FSC) hinder liberal trade principles, and 
the dollar is undervalued, yet the EU is accused of being 
more protectionist.  Clara Gaymard, head of the French 
Agency for Investment promotion (AFII), picked up this theme 
to argue that France needs to do a better job in 
communication.  She said it has become hard to sell the 
image of France as a country that has implemented reforms 
when every investor asks about the Pepsi-Danone flap (where 
the PM spoke out against a possible acquisition).  The Econ 
MC commented that in the US, Danone could have bought Pepsi. 
Jean-Louis Gergorin, VP of EADS, said EADS is guided by 
patriotism, since if it were guided by pure profit motives 
it would have moved labor out of France long ago.  He noted 
that export controls are a bigger problem than investment 
controls, since the State Department clearances take too 
long.  He added Boeing would not have been able to launch 
its fleet without billions in Pentagon R&D funds, and said 
the GOF should promote European pension funds.  A venture 
capitalist, Phillipe Pouletty, countered that the French 
economic model is protectionism in disguise, and France does 
not need to subsidize its firms any more, but should spend 
more on R&D and facilitate private investment in profitable 
firms. 
 
¶7.  (U) At the second panel, Gay Sills from the US Treasury 
spoke of the procedures of the Committee on Foreign 
Investment (CFIUS), founded on the principles of an open 
investment climate.  Vincent Guitton, from the French 
Ministry of Economy and Finance, explained French 
legislation, and spoke in very general terms about the 
objectives of impending regulations modifying the French 
investment regime.  (The draft decree reportedly will shield 
ten sectors France considers strategic: defense, 
biotechnology, space technology, telecommunications, 
casinos, encryption IT security and antidote production). 
Frederic Puaux, deputy of the director for economic 
intelligence in the Ministry of Defense (an office created 
in response to the Carayon report), stated French rules do 
not allow for mitigation, but do allow for appeal (whereas 
the US system allows for mitigation, but no appeal from a 
Presidential determination).  The US system cannot be 
transposed to France because of EU rulings requiring precise 
definition of national security.  No other state has a more 
precise definition than France.  (NOTE: The positive 
portrayal of the US non-definition of "national security" 
reflected French congressional concerns that the GOF was 
going to make the French investment regime too restrictive, 
which in their view would be counterproductive.  END NOTE.) 
 
¶8.  (U) The Ambassador closed the conference with a speech 
vigorously defending the open investment climate in the US, 
expounding on the virtues of an open investment policy, and 
warning against protectionist trends. 
 
Man on a Mission 
---------------- 
¶9.  (SBU) On October 3, the PM named Carayon to head a 
legislative mission to not only explore implementing 
controls on foreign investment, but also to explore the 
creation of rules and the greater involvement of the private 
sector in international negotiations, particularly in 
Europe.  We spoke with Carayon about this new mission, and 
offered assistance in arranging a possible visit to USG 
officials. 
 
Comment 
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¶10.  (SBU) We greatly appreciate the assistance from the 
Department and the participation of Treasury official Sills 
in this conference.  The debate easily could have swung to 
bashing the USG (at least one major French firm, Thomson, 
had a bruising experience with CFIUS), but our active 
advocacy forestalled that result.  Nevertheless, we were 
struck by the pessimism expressed across the board by how 
the French are protecting their national security.  We 
accordingly will remain engaged, since protectionist 
sentiments in France continue to be stoked by sluggish 
economic growth and persistently high unemployment rates. 
STAPLETON