US embassy cable - 05PARIS4869

UNCLAS SECTION 01 OF 03 PARIS 004869 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR EB, EUR/ERA AND EUR/WE 
 
E.O. 12958: N/A 
TAGS: ECON, EIND, FR 
SUBJECT: CAN FRANCE CREATE A "MICROSOFT"? GOF CREATES 
(ANOTHER) GOVERNMENT AGENCY TO SPUR INNOVATION 
 
 
1. (SBU) Summary.  With French economic growth slowed and 
the EU's Lisbon strategy stalled, the GOF is looking for 
additional ways to promote industrial innovation. Both the 
Raffarin and now Villepin governments have set an industrial 
political agenda that has led to reorganization of small 
government agencies hopefully strengthening the 
competitiveness of French companies.  Existing agencies have 
been reformed, and the GOF announced the creation by summer 
2005 of a new government agency with a two billion dollar 
budget, to be partially financed by recent privatization 
revenues.  Other GOF measures include increased research 
spending, a research tax credit, easier credit for SMEs and 
a strong focus on building public-private partnerships.  The 
efforts are strongly supported by Prime Minister de Villepin 
and Finance Minister Thierry Breton. The GOF hopes these 
initiatives, which were developed to fulfill European 
political goals established by the Lisbon Agenda, will 
create favorable economic conditions for small and start-up 
industries as well as for large projects and jumpstart the 
French economy. End Summary. 
 
2. (U) At the Paris Air Show June 14, Prime Minister de 
Villepin proclaimed a new role for the GOF in industry. 
Reflecting French pride at the success of Airbus, he 
described the government as "a central figure in a network 
acting to protect, stimulate, and anticipate industry 
action".  Under this new mantra, the new Agency for 
Industrial Innovation (AII), announced by President Chirac 
on January 4, will finance "large pioneer projects". 
Already de Villepin has increased the power of AII by giving 
the agency 500 million euros from GOF sales of France 
Telecom shares. He subsequently doubled this initial 
endowment to one billion euros.  This money will be used to 
support projects in new areas such as solar energy, 
biofuels, nanotechnology and biotechnology. 
 
AGENCY TO JUMPSTART INNOVATION 
------------------------------- 
 
3. (SBU) The Agency for Industrial Innovation (AII) was 
developed under the Breton Law (adopted by the National 
Assembly on June 28, 2005 and currently being debated in the 
Senate) on the modernization of the French economy. The AII 
will be composed of thirty professionals working with large 
industrial groups to identify half a dozen innovative 
programs.  The agency will be only partially financed by 
revenue from privatizations, specifically France Telecom 
shares.  AII is slated to be up and running by the end of 
the summer 2005 and will begin its financing operations 
during the fall of 2005.  The GOF provided for an AII 
working budget of around two billion euros between 2005 and 
2007. While the bulk of its grants are expected to be for 
"large projects", French Finance Minister Breton, inspired 
by the American Small Business Act, has set a goal to 
increase small and medium enterprise participation by 
granting up to that 25% of the AII-financed programs to 
SMEs. 
 
NEW GOVERNMENT CONTINUES OLD PLAN 
---------------------------------- 
4. (SBU) In addition to institutionalizing support of 
industrial innovation, the previous Raffarin government had 
developed a five-point plan, adopted by his successor 
Villepin, which emphasizes increased funding for cooperative 
projects between public and private actors as well as 
support for of innovative research by large and small 
businesses alike.  This plan originally was designed to 
serve not only national political economy interests, but 
also to advance the EU's Lisbon Agenda objectives in France 
(including increasing investment to assure innovation and 
competitiveness.)  The creation of AII constitutes one goal 
of the plan.  An additional aspect is an Innovation Plan 
allowing tax breaks for research.  Under this banner, the 
GOF also conceived the tax status "young, innovative 
enterprise" (JEI) to provide tax breaks and exemption from 
employer's contributions to qualified businesses. 
 
5. (SBU) Another point of the GOF's industrial innovation 
plan is the identification of "poles of competitiveness". 
This appellation denotes a geographic grouping of business, 
educational and research centers focused on one 
technological/ scientific domain.  These clusters are 
composed of both private and public entities.  They must 
have shared, concrete projects and potential international 
visibility.  The status provides fiscal advantages in the 
form of tax breaks and possible subsidies from local 
communities and EU funds (such as FEDER, FSE, FEOGA and 
IFOP).  As of February 28, 2005 the GOF had officially 
identified ten such "poles of competitiveness". 
 
HELPING OUT THE LITTLE GUYS 
---------------------------- 
6. (SBU) Other efforts include the GOF establishment on June 
29 of OSEO, an umbrella agency to facilitate a closer 
partnership between the French Innovation Agency (ANVAR) and 
the Development Bank for Small and Medium Enterprises 
(BDPME). Whereas AII deals mostly with large-scale research- 
related projects, OSEO is an umbrella organization 
specifically created to support SMEs. Through a network of 
public and private actors, this agency will provide 
financial support (chiefly at the regional level) to SMEs at 
crucial moments in enterprise life, including creation and 
research.  At the Paris Air Show in June 2005, Prime 
Minister de Villepin announced that 350 million euros 
(mainly resulting from privatization receipts) would also be 
given to ANVAR in 2005.  In 2004, OSEO allotted 
approximately 260 million euros in assistance for 3,680 
innovation projects.  In addition, the Innovation 
Development Contract formulated by OSEO provides for 
continuing support of inventive research by helping SMEs to 
commercialize the results of their research. 
 
7. (SBU) Regarding SMEs and the French economy:  On June 14, 
2005, de Villepin announced that innovation aid managed by 
ANVAR will be increased by 50% starting in 2006 in order to 
directly support technology companies.  This decision is 
especially directed at aiding innovative SMEs compete at the 
same level as large enterprises that will receive AII- 
sponsorship for technological projects.  Parenthetically, a 
stock exchange, Alternext, devoted to small businesses 
opened May 17 in Paris. 
 
CURRENT LEGISLATIVE EFFORT 
--------------------------- 
8. (SBU) In addition to creating new agencies and 
classifications, the final point of the GOF industrial 
innovation plan revolves around a bill (the LOPRI law) on 
guidance and planning for high-tech research that should 
entail the formation of a high council for research and 
innovation (HCRI) and a national research agency (ANR). 
HCRI will establish a national strategy for public and 
private sectors including research priorities and 
recommendations.  This council will be composed of ten 
scientists and ten representatives of what the French call 
the "socioeconomic sector".  Its monthly reports to the 
Prime Minister will serve as the basis for debate in 
Parlement.  The ANR (successor to the temporary Public 
Interest Group National Agency of Research, or GIP ANR) will 
put the national priorities into practice.  In effect, the 
agency will both support and conduct research. 
 
CURRENT CORPORATE CLIMATE IN FRANCE 
------------------------------------ 
9. (SBU) A study by Comite Richelieu (an association of 
small French high-tech firms) has shown that globally, new 
firms (less than twenty years old) are behind most economic 
growth.  Traditionally, small and medium enterprises have 
not received visible support from the French government or 
its principal institutions, limiting their possibilities for 
growth.  Large, "low-tech" companies in traditional sectors 
dominate the economic landscape, and receive greater 
attention from the GOF.  The lack of new firms on the French 
business scene poses potential barriers to economic growth 
and creation of new employment.  A recent survey by French 
umbrella organization OSEO reports that while French SMEs 
may have innovative ideas, they do not possess the means to 
put them into practice. 
 
10. (SBU) COMMENT: The government's strategy, while culled 
largely from its predecessor's efforts, announces a clear 
strengthening of French industrial policy--with a slightly 
different take.  The chief goal is to make the French 
economy and French enterprises more innovative by supporting 
industrial projects in the economic "sectors of the future" 
in France.  Through a combination of initiatives promoting 
innovation within both large business groups and small 
enterprises, the GOF hopes to encourage hiring, expansion of 
business, increased exports and development and 
commercialization of new technology.  Unlike the heyday of 
the French-style planned economy, this new industrial policy 
does not look to promote the French government's direct 
management of the economy.  Rather, the government is 
striving to create favorable economic conditions for 
industrial innovation.  While many of the measures have been 
publicized recently, most of them have been on the drawing 
board for over a year.  It is unlikely that Prime Minister 
Villepin is counting on them to stimulate the economy in the 
next 100 days. 
 
STAPLETON