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RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHFR #1513/01 2171721
ZNR UUUUU ZZH
R 041721Z AUG 08
FM AMEMBASSY PARIS
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INFO RUCNMEM/EU MEMBER STATES COLLECTIVE

UNCLAS SECTION 01 OF 02 PARIS 001513 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EIND EINV ETRD ELAB PGOV FR
SUBJECT: ECONOMIC AND LABOR REFORMS THAT WILL CHANGE THE 
FRENCH ECONOMY 
 
NOT FOR INTERNET DISTRIBUTION 
 
Summary 
------- 
¶1.  (SBU) The French National Assembly has adopted four 
key economic and labor reforms that will ease many 
services and labor market constraints, boost purchasing 
power, promote entrepreneurship, and allow individual 
firms to negotiate overtime hours with their employees. 
The fours laws in question -- Law on the Modernization of 
the Economy, Law on the Modernization  of  the Labor 
Market, Law on Social Democracy and Work Time Reform, and 
Law on the Rights and Duties of Jobseekers Q are 
touchstones of the Sarkozy reform program and should 
boost French competitiveness over the long term.  End 
summary. 
 
LME: Easing restrictions on product and services market 
--------------------------------------------- ---------- 
¶2.  (SBU)  The French National Assembly on July 9 adopted 
the Law on the Modernization of the Economy (LME).  The 
law includes many of the recommendations on improving 
retail competitiveness proposed by the Commission on 
Economic Growth, chaired by former EBRD President Jacques 
Attali.  The LME introduces greater flexibility in the 
retail market by liberalizing restrictions on price 
negotiations between suppliers and retailers, originally 
designed to protect small retailers.  Together with an 
earlier reform which legalized below-cost selling, the 
GOF claims the LME will lower retail prices by some two 
percent.   Economy and Employment Minister Christine 
Lagarde stated the reforms could represent a gain of 
1,000 Euros in purchasing power per year for every French 
household.  The draft law also lifted zoning restrictions 
for retail establishments of up to 1,000 square meters. 
However, this provision was amended by Senate to keep in 
place the 300 square meter threshold in towns of more 
than 15,000 inhabitants.  (Comment: September elections 
to renew a third of the Senate undoubtedly influenced 
this move.  French Senators are elected by local 
authorities, who want to keep their powers to veto big- 
box retailers.  End comment.)  To further these retail 
reforms, the LME merges FranceQs two existing competition 
regulators into a new, more powerful single authority. 
 
LME: Improving the business environment 
--------------------------------------- 
¶3.  (SBU)  The other key aim of the bill is to promote 
entrepreneurship.  The LME allows employees and retirees 
to become self-employed entrepreneurs without paying 
registration fees or taxes, provided sales do not exceed 
a limit to be determined in a later decree.  It further 
introduces a maximum 60-day statutory limit for payment 
terms, and encourages growth by firms with less than 10 
employees by reducing taxes and payroll taxes on 
additional employees.  The LME also institutes a French- 
style Small Business Act that will reserve a 15 percent 
share of public procurement for innovative firms that 
invest a to-be-determined minimum amount in research and 
development. 
 
LME: Other measures 
------------------- 
¶4.  (SBU)  Other notable features in the LME include: 
 
-- the end of the postal system monopoly  on the so- 
called Livret A state-administered savings account (Note: 
A regular IMF Article IV recommendation for improving 
FranceQs financial sector efficiency. End note); 
 
-- the development of high-speed internet access through 
fiber-to-the-home (FTTH) networks from 2012; 
 
-- a more favorable income tax regime for foreign 
professional workers assigned to France (QimpatriatesQ). 
Among other changes, this regime applies not only to 
employees sent to France by their foreign employer, but 
also to individuals recruited directly by a French 
employer from abroad. 
 
The GOFQs second economic reform package since last 
summerQs major tax reform bill, the LME will require over 
120 implementing decrees and come into force on January 
1, 2009. 
 
 
Lifting Labor Market Restrictions 
--------------------------------- 
¶5.  (SBU)  On July 24, French parliamentarians approved a 
path-breaking bill on QSocial Democracy and Work time 
ReformQ which opened up the possibility for employers and 
 
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employees to set overtime and compensatory time 
arrangements on a firm-by-firm basis, rather than through 
national agreements.  This effectively ends the 35-hour 
weekly work limit by allowing company agreements to 
depart from national agreements and/or the 35 hour work- 
week law. 
 
¶6.  (SBU)  At the same time, the new law reinforces 
Qsocial democracyQ by ending the virtual monopoly of 
FranceQs five major unions on labor negotiations. 
Elections will determine the weight of a union in the 
workplace, and more than 10 percent of the vote will be 
required for an organization to be able to represent 
employees and negotiate agreements.  A company-level 
agreement becomes applicable to all employees if approved 
by 30 percent (and not opposed by over 50 percent) of the 
workforce.  These new rules allow companies to negotiate 
an increase in the number of overtime hours, with a cap 
of 405 hours each year.  These hours will be paid an 
additional 25 percent or 50 percent per hour (depending 
on various factors), and companies will not pay payroll 
taxes on the overtime hours. 
 
¶7.  (SBU)  The Law on the  Modernization of the Labor 
Market, for its part, introduces the possibility of 
terminating an employment contract by mutual consent. 
This measure should help reduce the number of challenges 
to dismissals brought before labor courts, a major 
headache for French employers.  A Law on the Rights and 
Duties of Jobseekers completes the labor market reform. 
Jobseekers will be cut off from unemployment benefits if 
they turn down more than two QreasonableQ job offers. 
The law is accompanied by the merger of the national 
employment agency (ANPE) with the unemployment benefits 
agencies (UNEDIC).   The new merged group aims to provide 
better guidance to jobseekers, as well as better access 
to training.  The merger is also designed to reduce the 
potential for fraudulent unemployment claims. 
 
Comment 
------- 
¶8.  (SBU)  The economic and labor reforms approved by 
Parliament during its extraordinary July session will 
help create a more dynamic French economy over the long 
term.   Critics of the Sarkozy government accurately 
point out that the measures do not lift all major 
constraints weighing on the French economy.  The LME does 
not liberalize some of FranceQs most coddled professions, 
such as notaries or pharmacists, and the Law on Social 
Democracy and Work time Reform does not altogether scrap 
the statutory 35-hour work week.  However, from shaking 
up supplier/retailer relations to prying open the labor 
market, the reforms break with a number of shibboleths 
and open the way for more change.  Whether  due to a 
political opposition  in disarray, the summer doldrums, 
or what critics call Qlegislative proliferationQ (42 
government reform bills have been pushed through the 
National Assembly since last October) having overwhelmed 
the body politic, the Sarkozy government has managed to 
set important change in motion with barely a squeak from 
the French street. 
 
Stapleton