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PP RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHFR #4315/01 2921049
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P 191049Z OCT 07
FM AMEMBASSY PARIS
TO RUEHC/SECSTATE WASHDC PRIORITY 0849
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUCPDOC/USDOC WASHDC PRIORITY
RHEHNSC/NSC WASHINGTON DC PRIORITY
INFO RUCNMEM/EU MEMBER STATES

UNCLAS SECTION 01 OF 02 PARIS 004315 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EIND EINV ETRD ELAB PGOV FR
SUBJECT:  THE SARKOZY ECONOMIC AGENDA - REFORM OF GOODS AND SERVICES 
MARKETS: "WORK MORE TO EARN MORE" 
 
REF:  PARIS 3741 
 
Summary 
------- 
¶1.  (SBU) French President Nicolas Sarkozy has made goods and 
services market reform an important element of his plans to boost 
purchasing power and create a more dynamic French economy.  He has 
announced a series of proposals to liberalize retail distribution, 
open up competition in goods and services markets, and deregulate a 
number of professions.  Currently the French pay up to 13 percent 
more than other Europeans for the same goods.  Large retailers and 
consumers welcome such changes; France's cherished neighborhood 
storekeepers and other protected sectors may be reluctant to "work 
more to earn more."  The support of a presidential commission on 
economic growth headed by socialist Jacques Attali helps provide 
political cover for Sarkozy's agenda.  This cable is one of three on 
the President's economic initiatives.  Septels will cover fiscal and 
labor reform. End summary. 
 
Greater flexibility in the retail sector 
---------------------------------------- 
¶2.  (U) The Sarkozy government plans to present a bill to the 
National Assembly by the end of 2007 to liberalize the relationship 
between retailers and suppliers, and a related bill to expand Sunday 
store openings.  To further open the retail sector, the GOF will put 
forward another bill after municipal elections next spring to lift 
restrictions on opening or expanding supermarkets.  Small 
shopkeepers have fought the opening of "discount stores" in France 
since the 1930's.  French laws introduced in the 1990's ( Raffarin 
Laws) restrict opening large scale retail outlets (partly by setting 
an economic needs test as determined by local officials).  Current 
restrictions limit supermarket size and expansion to 3000 square 
feet which affects "big box" discount retailers. 
 
¶3.  (U) Under practices that date back decades, retailers are 
prohibited from selling below invoice in the name of protecting 
small shops.  Large retailers secure below-invoice prices from 
suppliers through volume rebates or fees for shelf space.  But these 
savings cannot be passed on to customers under existing "Galland" 
retail laws passed in 1996.  The GOF proposal would incorporate the 
"back margins" into pricing calculations but does not go as far as 
laws elsewhere in Europe that ban predatory pricing but not all 
sales below cost.  According to the Attali commission, the Raffarin 
and Galland laws cost French consumers 9.6 billion euros annually. 
 
 
¶4.  (U) Any reform that lowers prices will be welcomed by consumers. 
 France's biggest retailers are eager to be able to set prices on 
brand name products.  In recent years, they have been hurt by 
customers moving from outlets that sell a range of brand-name 
products, to deep discounters offering little-known brands.  In 
response, they have expanded stocking of both store-brand and 
deep-discount goods.   Analysts believe that reform of the Galland 
law will improve stores' operating margins in the near term, but 
will also stimulate competition and reduce prices. 
 
Work more to earn more, including Sundays 
----------------------------------------- 
¶5. (U) Breaking with a French taboo, Sarkozy is proposing to allow 
stores to remain open on Sundays.  He illustrates the issue by 
pointing to the Champs Elysee - where stores in a "tourist zone" on 
one side of the street are open on Sunday while those on the 
"non-tourist" side are not.  Employers and workers from a variety of 
retailers regard the case for Sunday openings as a bellwether of 
Sarkozy's "work more to earn more" policy. 
 
¶6. (SBU) Jerome Bedier, president of the French retail federation, 
told us that while he welcomes Sarkozy's reform agenda, the issue is 
a "nightmare" for retailers.  Due to the panoply of sometimes 
conflicting laws and regulations affecting working hours and 
conditions, Bedier predicted that Sunday openings, while good for 
business, will initially be a headache for business owners. 
Nevertheless he believes the reform will be included in legislation 
this year.  The Attali Commission's interim report should help 
improve the political environment for adoption of the measure, he 
said. 
 
Opening up regulated professions? 
--------------------------------- 
¶7.  (U) Sarkozy has not yet detailed proposals to liberalize laws 
governing professions in France, such as pharmacists, taxi drivers, 
nurses and notaries.  Future policy in this area may be guided in 
part by the final recommendations of the Attali Commission.  In its 
October 15 interim report, the Commission focused on deregulation in 
the real estate professions to boost property ownership rates in 
France.  But the Commission has also taken up more controversial 
issues, such as the monopoly of independent pharmacies.  The 
Commission's conclusions appear to be closely aligned with Sarkozy's 
 
PARIS 00004315  002 OF 002 
 
 
drive for deregulation.   A report commissioned by the President in 
2004 when he was Minister of Finance, called for abolishing the 
quota system for taxi drivers, veterinarians, physiotherapists and 
other professions and for scrapping of "excessive" qualification 
requirements for accountants and other white collar professions, as 
well as for hairdressers, butchers, and similar trades.  The 
report's authors continue as Sarkozy economic advisors. 
 
¶8. (SBU) France has been among the staunchest opponents of EU 
proposals to deregulate service professions.  Opposition to the 
so-called Bolkenstein directive on services, which included 
provisions to liberalize professional services, was partly 
responsible for France's rejection of the European Constitution in 
¶2005.  In October 2006, the EU Commission sent opinions to France, 
among other EU member states, requiring it to scrap nationality and 
ownership requirements that restrict access to a number of 
professions.  Sarkozy's proposals are an important break from past 
French practice, and a move towards bringing France in line with 
Commission efforts to enforce the free movement of services and 
freedom of establishment.  Sarkozy has also signaled that France 
will fully implement EU directives governing recognition of diplomas 
and professional mobility. 
 
Comment 
------- 
¶9. (SBU) President Sarkozy's plans to reform France's goods and 
services markets are similar to proposals he put forward in 2004 as 
Minister of Economy and Finance.  The Attali Commission provides 
additional political and intellectual cover to move forward.  The 
constituencies most affected by change (pharmacists, notaries, taxi 
drivers, etc) will appeal to French lifestyle arguments to water 
down the proposed reforms.  Outcomes will depend on whether Sarkozy 
maintains his political momentum in the months to come and 
conversely on whether opponents succeed in uniting interests most 
impacted by reforms. 
 
Stapleton