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Do all European states play by the same rules?

THE BRITISH CIVIL SERVICE has a legendary reputation for fairness, and when it comes to applying European 'state-aid' rules, these are imposed with a degree of rigour. No Scottish company is likely to be favoured if there is a multi-national which could be fairly awarded the business on competitive grounds.

 

It is also easier for an overseas corporation to acquire a British company than the other way around, and such deals have been enhanced with the pound's recent drop in value. We seem to be defenceless against such market forces; indeed we have no specific protection mechanisms in the UK.

 

But need it be like this? There is no question that public policy in Washington DC is unashamedly directed towards supporting indigenous US companies, and that in Tokyo the government supports Japanese companies.

 

And the same is evidently true of our fellow member of the European Union, France - it should operate under exactly the same European state-aid rules we do, but they clearly manage to interpret them much more flexibly.

 

When French Sopra Group bought Newell and Budge in 2005, and France's Sword bought Graham Technology in 2008, Scotland lost two of its biggest IT services companies.

 

The French have been bending trade rules for some time. Back in the 1980s they forced all Japanese imports of video recorders to be cleared by customs at an undermanned office in the remote town of Poitiers, which had the effect of delaying their sale as long as possible.

 

When US Corporation PepsiCo showed interest in buying French food company Danone in 2005, Prime Minister Dominique de Villepin declared that Danone was "among the jewels of our industry" and blocked the deal. "We plan to defend France's interests," Villepin said. Contrast that with American corporation Kraft that recently won the takeover of Britain's Cadbury - a deal that was funded in part by lending from the UK's Royal Bank of Scotland.

 

When the French power distribution arm of Areva agreed a sale to the highest bidder, Japan's Toshiba, the French Government stepped in and forced it instead to sell to Alstom and Schneider, both French companies.

 

The French Government has now set up a €2 billion fund - the 'Fonds Stratégique d'Investissement' - to make strategic long-term investments in French companies, and, of course, to make them much more difficult to acquire.

 

The French Government has also published a 'décret', requiring the authorisation of the Economy Minister for foreign investments in France, which has been challenged by Brussels.

 

"Defending national champions in the short term, usually ends up relegating them to the second division in the long-term," said José Manuel Barroso, president of the European Commission, in a speech to the European Parliament. But the French Government, clearly unimpressed by such declarations, has compiled a list of 20 companies, thought to include Danone and retailer Carrefour, that it would defend from foreign takeover.

 

A few months ago I was at Rolls-Royce in Derby discussing their Trent 900, the impressive new jet engine they have developed for the Airbus 380, the world's largest commercial airliner. I showed some surprise that Air France/KLM had chosen to order the rival American engine made by GE/Pratt & Whitney - in which French company Snecma has an economic interest.

 

"Surely", I said, "you might expect Air France to buy a European engine". My host looked me straight in the eye. "Air France has never, ever, bought a Rolls-Royce engine".

 

With good Europeans like the French on our side, my guess is we don't need to look too hard for competitors.

 

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