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FDI: Financial incentive

After a meeting with Renault executives, the French government announced on 16 January 2010 that the French carmaker will produce part of the output of its model Clio IV (expected in 2013) in the French plant located at Flins. Prior to the statement, press articles had indicated plans of Renault to concentrate production at its plant in Bursa, Turkey. The potential job losses associated with the restructuring had promted French Industry Minister Christian Estrosi and President Nicolas Sarkozy to intervene at the highest level and excert pressure using the 15.01 percent stake the French state currently holds in the firm. While it is beyond the Global Trade Alert to evaluate whether such an intervention is compatible with shareholder rights, the following paragraphs document the trade-related statements made by Mr Estrosi as well as Mr Sarkozy.
To prepare the meeting between Mr Sarkozy and Renault executives, French Industry Minister Christian Estrosi had met the director general of Renault, Mr Patrick Pelata, on 12 January 2010. After the meeting, the Ministry of Economy, Industry and Employment released a statement specifying the halt and reversal of international oustourcing to be the content of the talk. According to the minister, assembling a car in France, but importing two thirds of its parts from abroad is "hidden outsourcing". Mr Estrosi went on to call Renault to engage more thouroughly with French suppliers and sub-contractors in its future activities at Flins.
In a parliamentary hearing later that day, Minister Estrosi explained that the French government "will not allow the Clio IV to be produced in Turkey. A Renault to be sold in France will be produced in France." The next day, 13 January 2010, Mr Estrosi elaborated in a further parliamentary session that he had reminded the executives of Renault of the state assistance granted through direct aid and the car scrappage scheme. He now expected "significant action" of the French car maker. To Mr Estrosi, "it is not acceptable, to learn that a new model will be produced in Turkey without embedding this into the industrial strategy put forth by the government."
The formula that cars to be sold in France should be produced locally has been repeated by Mr Sarkozy in a talk show aired on 25 January 2010 on the French television channel TF1. In addition, Mr Sarkozy explained that the discussion was not about prohibiting the outsourcing of production in general. But, the French president insisted, "when we decided to help Renault, this was not to allow continous outsourcing." Regarding the share of imported car parts, Mr Sarkozy went on stating "I demand this proportion to be reversed; two thirds of Renault's sub-contractors shall be French."
On 28 January 2010, Renault's CEO Carlos Ghosn apparently agreed to the demands of the government. In an interview with the French television channel France 24, Mr Ghosn stated that "at least the amount of Clios sold in France will be produced in France."
The comments of Mr Estrosi and Mr Sarkozy raised concerns from EU competition commissioner Neelie Kroes. Upon request, the French government submitted a letter to the competition commission, stating that assistance to French car makers had not been tied to local production.
Update (October 4th, 2012): according to the current information, around 160'000 cars a year will be produced in Bursa, Turkey, and only 60'000 to 80'000 a year in Flins, France. This decision is supposed to save EUR1bn in production costs. 



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