Order Code RL32459
CRS Report for Congress
Received through the CRS Web
U.S.-French Commercial Ties
July 7, 2004
Raymond J. Ahearn
Specialist in International Trade and Finance
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

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U.S.-French Commercial Ties
Summary
U.S. commercial ties with France are extensive, mutually profitable, and
growing. With approximately $1 billion in commercial transactions taking place
between the two countries every business day of the year, each country has an
increasingly large stake in the health and openness of the other’s economy.
France is the 9th largest merchandise trading partner for the United States and
the United States is France’s largest trading partner outside the European Union. In
2003, 64% or $29.7 billion of bilateral trade occurred in major industries such as
aerospace, pharmaceuticals, medical and scientific equipment, electrical machinery,
and plastics where both countries export and import similar products.
The United States and France also have a large and growing trade in services
such as tourism, education, finance, insurance and other professional services. In
2002, France was the sixth largest market for U.S. exports of services and the seventh
largest provider of services to the United States.
While trade in goods and services receives most of the attention in terms of the
commercial relationship, foreign direct investment and the activities of foreign
affiliates can be viewed as the backbone of the commercial relationship. The scale
of sales of U.S.-owned companies operating in France and French-owned companies
operating in the United States outweighs trade transactions by a factor of six to five.
In 2002 France was the sixth largest host country for U.S. foreign direct
investment abroad and the United States with investments valued at $43.9 billion
was the number one foreign investor in France. During that same year, French
companies had direct investments in the United States totaling $171 billion
(historical cost basis), making France the second largest investor in the United States.
French-owned companies employed some 578,600 workers in the United States in
2001 compared to 540,000 employees of U.S. companies invested in France.
Most U.S. trade and investment transactions with France, dominated by
multinational companies, are non-controversial. Nevertheless, three prominent issues
— agriculture, government intervention in corporate activity, and the war in Iraq —
have contributed to increased bilateral tensions in recent years. The most pointed
perhaps arose in early 2003 with reports of U.S. consumer boycotts of French goods
and calls from some Members of Congress for trade retaliation against France (and
Germany) due to foreign policy differences over the Iraq War.
The foreign policy dispute, however, appears not to have had much impact on
sales of products such as French wines, perfumes and toiletries, travel goods and
handbags, and cheeses that are most prone to being boycotted. While some public
opinion polls suggest support for economic boycotts as a way of expressing
opposition to France’s position on Iraq, a substantial economic backlash appears
unlikely due to the high degree of economic integration. Effective boycotts would
jeopardize thousands of jobs on both sides of the Atlantic. This report will not be
updated.

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Contents
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Trade Ties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Investment Ties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Tensions and Disagreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Government Intervention in Corporate Activity . . . . . . . . . . . . . . . . . . 8
Iraq War . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Appendix: Trade and Foreign Investment Data . . . . . . . . . . . . . . . . . . . . . . . . . . 12
List of Tables
Table 1. U.S. Trade with France in Goods, 1995-2003 . . . . . . . . . . . . . . . . . . . . 2
Table 2 . U.S. Trade with France in Services, 1995-2002 . . . . . . . . . . . . . . . . . . . 3
Table 3. U.S. Trade Balance with France on Goods and Services, 1995-2002 . . . 3
Table 4. U.S. - France Commercial Interactions, 2001 . . . . . . . . . . . . . . . . . . . . . 4
Table 5. U.S. Imports from France of Selected Products, 2001-2003 . . . . . . . . 10
Table A. Top Ten U.S. Trading Partners, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . 12
Table B. France’s Top Trading Partners, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Table C. Major U.S. Exports to France, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Table D. Major U.S. Imports from France, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . 13
Table E. U.S. Total Exports to France by Top 25 States . . . . . . . . . . . . . . . . . . . 14
Table F. Foreign Direct Investment in the United States:
Top Five Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Table G. Employment of French Nonbank U.S. Affiliates,
by Top 15 States, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Table H. French Foreign Direct Investment in the United States,
1990-2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Table I. U.S. Foreign Direct Investment in France, 1990-2001 . . . . . . . . . . . . . 17
This report was written at the request of the co-chairs of the Congressional
French Caucus.

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U.S.-French Commercial Ties
Overview
U.S. commercial ties with France are extensive, mutually profitable, and
growing. Each country has an increasingly large stake in the health and openness of
the other’s economy. While the relationship dates back to the colonial period, it is
also constantly evolving.
The U.S. and French economies share many similarities. Based on a gross
domestic product (GDP) of over $11 trillion, the United States is the world’s largest
economy. France with a GDP approaching $2 trillion is the world’s sixth largest
economy. France’s population of 60 million has a per capita income (based on
purchasing power parities in 2002) of $26,000 while the comparable figure for the
United States, based on a population of 275 million, is $36,300.1 As industrialized
economies, both share similar structural attributes where over 70% of the civilian
workforce is employed in services and less than 3% in agriculture.2
At the same time, the state still plays a larger role in the economy of France than
in the United States. This is particularly true in the provision of services such as
education and health care, but also in energy, telecommunications, and transport
where state-owned companies play a prominent role. Policies geared to supporting
national champions in leading sectors, to sustaining a network of personal
relationships linking the heads of large companies with senior civil servants, and to
rejecting American-style laissez-faire capitalism also distinguishes France from the
United States.3 Yet, prompted by mandates from the European Union, the
government of France has acted to liberalize the vast majority of product markets,
including energy, in recent years.4
Trade Ties
Differences in the role the state plays in the economy, however, have not
precluded a growing number and type of international economic transactions from
making the two economies increasingly interdependent. In the case of merchandise
trade, France is the 9th largest trading partner for the United States and the United
States is France’s largest trading partner outside the European Union. As shown in
1 CIA World Factbook, 2003.
2 OECD data.
3 The contrast in unemployment rates, with France approaching 10% and the United States
under 6%, is another major difference between the two economies.
4 The Economist Intelligence Unit, France: Country Profile 2004, pp. 32-33. Available at
[http://www.eiu.com/schedule].

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CRS-2
Table 1, total trade turnover (exports plus imports) totaled $46 billion in 2003, with
the United States running a $12.2 billion deficit.
Table 1. U.S. Trade with France in Goods, 1995-2003
(Billions of Dollars)
1995
1996
1997
1998
1999
2000
2001
2002
2003
Exports
14.2
15.5
16.0
17.7
18.9
20.4
19.9
19.0
17.0
Imports
17.2
18.6
20.6
24.0
25.7
29.8
30.4
28.2
29.2
Balance
-3.0
-4.1
-4.6
-6.3
-6.8
-9.4
-10.5
-9.2
-12.2
Source: U.S. Census Bureau.
Most striking about U.S.-French merchandise trade is the extent to which it is
concentrated in similar industries and sectors (so-called intra-industry trade). In
2003, 64% or $29.7 billion of bilateral trade occurred in major industries such as
aerospace, pharmaceuticals, medical and scientific equipment, electrical machinery,
and plastics where both countries export and import similar products (see Tables C
and D in the Appendix). Many of these products are components or capital goods
used in the production of finished goods in both the United States and France.
Furthermore, due to large amounts of foreign direct investment across both sides of
the Atlantic, much of this intra-industry trade takes place as trade between parent
companies and their affiliates (so-called intra-firm trade). This kind of trade, where
large multinational companies, such as Michelin and General Electric, trade among
their affiliates, accounted for $18 billion or 36% of total trade turnover in 2001.5
The overwhelming role that both intra-industry and intra-firm trade play in
merchandise trade tends to limit targets of any potential trade retaliation. This is
because restrictions placed on most of these traded items would adversely affect
domestic production as well as employment of the country imposing the restriction.
The United States and France also have a large and growing trade in services
such as tourism, education, finance, insurance, and other professional services. As
shown in Table 2 , the U.S. exported $10.7 billion in services to France in 2002 and
imported $9.6 billion in services. These amounts made France the sixth largest
market for U.S. exports of services and the seventh largest provider of services to the
United States.
5 CRS calculation based on Department of Commerce, Bureau of Economic Analysis data.

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CRS-3
Table 2 . U.S. Trade with France in Services, 1995-2002
(Billions of Dollars)
1995
1996
1997
1998
1999
2000
2001
2002
Exports
7.9
8.9
9.3
9.6
10.0
10.5
10.1
10.7
Imports
5.9
6.0
6.6
7.4
8.0
10.5
9.9
9.6
Balance
2.0
2.9
2.7
2.2
2.0
0
0.2
1.1
Source: U.S. Bureau of Economic Analysis.
From 1995-1999, the United States experienced surpluses in services trade with
France that averaged over $2 billion annually. While services trade was basically
balanced in 2000 and 2001, the U.S. ran a $1.1 billion surplus in 2002 (the last year
for which these data are available). As a result of services trade surpluses, the U.S.
incurs smaller deficits with France, as shown in Table 3, on trade in both goods and
services.
Table 3. U.S. Trade Balance with France on Goods and Services,
1995-2002
(Billions of Dollars)
1995
1996
1997
1998
1999
2000
2001
2002
Balance
-1.0
-1.2
-1.9
-4.1
-4.8
-9.4
-10.3
-8.1
Source: U.S. Bureau of Economic Analysis.
Investment Ties
While trade in goods and services receives most of the attention in terms of
U.S.-France commercial ties, foreign direct investment and the activities of foreign
affiliates can be viewed as the backbone of the commercial relationship. Compared
to trade flows, the scale of commercial activities of U.S.-owned companies operating
in France and French-owned companies operating in the United States outweighs
trade flows by a factor of six to five.
This key dynamic of the commercial relationship is illustrated in Table 4. In
2001, French companies sold $212 billion of goods and services to U.S. consumers
while U.S. companies sold $148 billion of goods and services to French consumers.
Of this combined $360 billion in sales, only $70 billion or 20% was accounted for
by international trade (exports of goods and services from French companies to the
U.S. and from U.S. companies to France). The vast majority (80%) was due to sales
by U.S. foreign affiliates producing and selling in France and French foreign
affiliates producing and selling in the United States. The combined U.S.-French
annual $360 billion sales figure translates into over $1 billion in commercial
transactions taking place every business day of the year.

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Table 4. U.S. - France Commercial Interactions, 2001
( Billions of Dollars)
Commercial Transaction
France
U.S.
Totals
Exports of goods
30.4
19.9
50.3
Exports of services
9.9
10.1
20.0
Foreign affiliate sales
172
117.8
289.8
Totals
212.3
147.8
360.1
Source: Bureau of Economic Analysis, Census Bureau.
In the case of foreign direct investment, France in 2002 was the sixth largest
host country for overall U.S. foreign direct investment and the United States was the
number one foreign investor with investments valued at $43.9 billion (historical cost
basis). During the same year, French companies had direct investments in the United
States totaling $171 billion (valued on a historical cost basis), making France the
second largest foreign investor in the United States in stock terms. Manufacturing
accounted for 41% of total French investments and 47% of total U.S. investments.6
The assets of some 2,918 French-owned companies operating in the United
States (2001 data) totaled $535 billion, up nearly 700% from $77.5 billion in 1990.
The 1,286 U.S.-owned companies operating in France had $191 billion in total assets
in 2001, up from $78 billion in 1990 (see Tables H and I).
The total gross product or value added of French-owned companies operating
in the United States in 2001 was $40 billion, up 200% from $19.2 billion in 1993 (the
first year this data was collected).7 This $40 billion gross product figure is greater
than the total gross national product of countries such as Morocco, Ukraine, and
Vietnam. At the same time, U.S. companies contributed $34.4 billion towards
France’s GDP in 2001, a sum exceeding the gross national products of Bolivia and
Guatemala.8
Affiliate sales are the primary means by which French companies deliver goods
and services to U.S. consumers. In 2001, French affiliate sales totaled $188 billion,
up from $81.9 billion in 1990. Adjusting the $188 billion figure down by $16 billion
— which was the value of French affiliate exports to the world in 2001 — translates
6 Unless otherwise noted, all foreign direct investment data come from the U.S. Department
of Commerce, Bureau of Economic Analysis.
7 Gross product is defined as the market value of goods and services produced by labor and
property located in the United States. Gross product can be measured as gross output (sales
or receipts and other operating income plus inventory change) minus intermediate inputs
(purchased goods and services).
8 GDP data from World Bank Development Report, 2003.

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CRS-5
into $172 billion in French affiliate sales to U.S. consumers, an amount that is 4.6
times greater than total French exports to the United States.
Sales of U.S. affiliates operating in France totaled $135 billion in 2001, up from
$102 billion in 1990. Adjusting for possible double-counting by subtracting the $4.1
billion in exports shipped by U.S. affiliates to the United States gives a net sales
figure of $130.9 billion. This figure, in turn, swamps the $19.9 billion in U.S. exports
of goods to France by a factor of 6.5.
French-owned companies employed some 578,600 workers in the United States
in 2001, up from 338,000 in 1990 but down from 655,000 in 2000. Of this total
262,000 were in manufacturing, 47,000 in wholesale trade, and 38,000 in retail trade.
The largest 100 French companies such as Lafarge, Michelin, Sodexho (hotels and
food service), EADS (European Aeronautic and Defense Company), Pernod-Richard,
and Thomson account for 450,000 (or 78% ) of the employment.9
A breakdown of employment by state indicates that the top 10 states hosting
French subsidiaries are California (63,600), New York (51,000), Texas (50,600),
Illinois (29,600), New Jersey (28,400), Pennsylvania (26,800), Florida (25,800),
Ohio (23,800), South Carolina (19,400) and Indiana (18,900).
U.S. companies invested in France had 540,500 employees in 2001, the vast
majority French citizens. Of this total, 245,000 or 45% were employed in
manufacturing industries such as chemicals (49,000), computers and electronic
products (28,000), and machinery (25,000). An additional 64,000 people were
employed in wholesale trade and 22,000 in scientific and technical services. Coca
Cola, for example, has about 2,600 employees in 19 production sites in France.10
French companies are also active in doing research and development (R&D) in
the United States. In 2001 they spent $3.2 billion on R&D, more than twice as much
as the $1.4 billion that U.S. companies spent in France.11 These expenditures can
take a variety of forms. L’Oréal, a Paris-based cosmetics firm, for example, in 2003
set-up a research institute — L’Oréal Institute for Ethnic Hair and Skin Research —
with an $1 million investment. This French-owned company reportedly plans to
earmark 4% of its annual U.S. sales of $22 million for development of hair spray and
skin creams dedicated to the African-American market.12
Through the MIT-France Program, the French government also plays a role in
supporting research and development in the United States. Funded by matching $1
9 Embassy of France. “Economic Relations between France and the United States,” January
2004. Available at [http://www.onfo-france-usa.org].
10 French News Digest, “U.S. Coca-Cola to Launch Mineral Water in France April 2004,”
January 29, 2004.
11 Data from U.S. Bureau of Economic Analysis.
12 Brieger, Peter. “L’Oréal looks to needs of U.S. minority buyers: The French cosmetics
firm opened a research institute dedicated to developing products for the African-American
consumer,” Financial Post, April 19, 2004.

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CRS-6
million contributions from France and MIT, the program was created in 2000 to
support collaboration in science and technology between the two countries, including
internships in France for MIT students. In the three years of the program, many of
the 200 participating French scientists have taken on prominent positions at Boston-
area biotech companies such as Eukarion, Biogen, and Genetix Pharmaceuticals.
French scientists have also founded start-up companies in the United States such as
Idenix Pharmaceuticals, which develops drugs for the treatment of viral and
infectious diseases.13
Tensions and Disagreements
France, as a member of the European Union, adopts the same trade policy as
other members of the EU.14 By sharing common tariff and non-tariff policies with
other EU members and by adopting EU-wide regulations and standards, there are few
trade disputes that can be considered U.S.-French bilateral disagreements per se.
Most U.S. trade and investment with France, dominated by multinational companies
and intra-firm trade, is non-controversial Nevertheless, three prominent issues —
agriculture, government intervention in corporate activity, and the war in Iraq —
have contributed to increased bilateral tensions in recent years.
Agriculture. Agricultural trade disputes historically have been the major
sticking point in U.S.-France commercial relations. Although the agricultural sector
accounts for a declining percentage of output and employment in both countries, it
has produced a disproportionate amount of trade tensions between the two sides.
From the U.S. perspective, the restrictive trade regime set up by the Common
Agricultural Policy (CAP) has been the real villain. It has been a longstanding U.S.
contention that the CAP is the largest single distortion of global agricultural trade.
American farmers and policymakers have complained over the years that U.S. sales
and profits are adversely affected by (1) EU restrictions on market access that have
protected the European market for European farmers; by (2) EU export subsidies that
have deflated U.S. sales to third markets; and by (3) EU domestic income support
programs that have kept non-competitive European farmers in business.
France’s agricultural sector, which in terms of output and land is the largest in
Europe, has long been the biggest beneficiary of the CAP. In 2002, French farmers
received 9.8 billion euros in CAP subsidies out of a total EU outlay of 43.2 billion
euros.15 Acting to continue benefits and subsidies for its farmers, the French position
can determine the limits and parameters of the European Commission’s negotiating
flexibility on a range of agricultural issues that are of keen interest to the United
States. The most prominent and perhaps important example relates to current efforts
13 Denison, D.C. “French Seek to Mend Rift Over Iraq with Science.” Boston Globe, April
28, 2003.
14 For discussion of U.S.-EU commercial ties, see CRS Report RL30608, EU-U.S. Economic
Ties: Framework, Scope, and Magnitude, by William Cooper.
15 European Commission, Directorate for Agriculture, Financial Report 2002. Found at
[http://europa.eu.int/comm/agriculture/agrista/2003/table_en/342.pdf].

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CRS-7
to get the WTO Doha round of multilateral trade negotiations back on track by
reducing agricultural subsidies. While the European Commission on May 10, 2004
offered to eliminate $3.3 billion in export subsidies, François Loos, the French trade
minister, balked on the grounds that the commission exceeded its mandate.16 Other
examples where the French position arguably has made settlement of disputes more
difficult include expanded trademark protection for wines, cheeses, and other food
products linked to specific regions, limits on research and use of genetically-modified
(GM) crops, and a ban on the importation of beef treated with hormones.17
France tends to receive backing for its position opposing many proposed
reforms of the CAP, as well as on other agricultural issues that adversely affect U.S.
interests, from Italy, Spain, Greece and Portugal. Germany, which pays around 50%
of the EU’s $100 billion budget, tends to receive support for agricultural reforms
from the Netherlands, Sweden, and the United Kingdom, the other countries that are
net financial contributors to the CAP. While the May 1, 2004 entry of 10 new
countries into the EU should over time increase pressures for reform of the CAP,
France is likely to insist that reductions of support levels be phased in over a long
time period in order to allow French farmers plenty of time to adjust.
The U.S. and France have also recently been at loggerheads over food-safety
issues. Last year and in early 2004 the EU suspended imports of live poultry and
eggs from the United States after a case of highly contagious avian flu emerged in
Texas. Then in February of this year the United States imposed an import ban on
French cold cuts and foie gras because of sanitation concerns. While both bans (the
EU ban has been suspended) may be due to legitimate health safety concerns,
underlying suspicions that the bans are politically motivated are not far from the
surface, thus highlighting ongoing tensions between the two sides.18
Despite the agricultural trade tensions, each side remains a relatively modest
agricultural market for the other’s products. U.S. agricultural exports to France,
totaling some $600 million annually, consist primarily of bulk commodities such as
soybeans and products, feeds, and fodders. French agricultural exports to the United
16 Meller, Paul. “France Splits With Europe Over Farm Subsidy Plan,” NYT, May 11, 2004,
p. W1. Some observers argue that French opposition to reform is often tactical and that it
has not prevented substantial reform of the CAP.
17 Trademark protection for geographic indications is also an issue of great importance for
Italy (parma ham and parmesan cheese), Greece (feta cheese), Hungary (tokay wine), and
Portugal (porto wine). Denmark, Italy, and Germany are other EU countries taking the lead
on limits on research and use of GM crops and most all EU members strongly support the
ban on the importation of beef treated with hormones. For further discussion of these
disputes, see CRS Report RS21569, Geographical Indications and WTO Negotiations, by
Charles Hanrahan, CRS ebtra53, Biotechnology and Agricultural Trade, by Geoffrey
Becker and Charles Hanrahan, and CRS Report RL31841, Agricultural Trade Issues in the
108th Congress, by Geoffrey Becker and Charles Hanrahan.
18 Dupont, Veronique. “As Feathers Fly Between U.S. and France, A Desperate Hunt for
Foie Gras,” Agence France Presse, February 25, 2004.

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States, which amount to more than $900 million annually, are mostly higher value-
added products such as cheese and processed products, beverages, and spirits.19
Government Intervention in Corporate Activity. Despite significant
reform and privatization over the past 15 years, the center-right French government
continues to play a larger role in influencing corporate activity than does the U.S.
government. This difference is manifested not only in the French government’s
continuing direct control of key companies, but also in its continuing proclivity to
influence mergers involving French firms. The French government’s close corporate
ties have also embroiled it in embarrassing disclosures related to an on-going
investigation of Credit Lyonnais’s 12-year old acquisition of a California insurance
company. Nevertheless, although bilateral disputes may be more prone to occur
because of the French government’s interventionist tendencies, the dictates of EU
laws as well as the urgent need to raise the revenues that accompany privatization
efforts, are weakening the French dirigiste tradition.
In 1997 the socialist government of France restarted a process of privatization
and opening of government-controlled firms to private investment that had begun in
the 1980s, and the program has been continued by the center-right government that
took power in 2002. As a result, by 2003 there were fewer than a dozen public
enterprises of any significant size still wholly owned by the state.20 These included
the leading electricity and gas suppliers (EDF and GDF), the quasi-monopoly
supplier of postal services (La Poste), the national rail operator (SNCF), a defense
equipment munitions manufacturer (GIAT Industries), and an aircraft manufacturer
(Snecma). In addition, the state retains a controlling interest in a number of
enterprises listed on the stock exchange. These include companies such as Air
France, France Telecom, Renault, and Thales (a defense electronics company
previously called Thomson CSF). The government also has more limited stakes in
Bull, EADS, Dassault Systems and many other firms.21
On February 24, 2004, the French government announced its intention to sell
a minority interest in Snecma, the aircraft manufacturer that supplied engines for the
Rafale and Mirage military aircraft. This partial privatization could be significant
since it will affect a company that is now 97% government-owned and deemed by the
French government to be operating in a “strategic” sector. The aim, according to the
Ministry of Finance, is to allow Snecma to deepen its longstanding partnership with
General Electric. An expected $2-$3 billion in receipts could be allocated for capital
infusion in other state-owned enterprises or to pay for the state-funded rescue of
Credit Lyonnais, a bank that failed in the 1990s.22
Despite this example of a renewed government commitment to its privatization
program, the French government continues to promote national champions as well.
Over the past two years, for example, the government has acted to prevent publishing
19 U.S. Department of State, “Background Note: France,” February 2004, p.5.
20 EIU, Country Profile 2004. p. 32.
21 Ibid.
22 EIU Country Report, April 2004, p. 19.

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CRS-9
and utilities divisions of Vivendi Universal from falling into foreign hands and it has
also organized state-sponsored “bail-outs” of France Telecom, Alstom, a big
engineering company, and Bull, a computer manufacturer.23
The most recent example of French government intervention in the marketplace
centered on the creation of a national pharmaceuticals champion. It did this in April
2004 by publically backing the merger of Sanofi-Synthelabo, a Paris-based
pharmaceuticals company, with Aventis, a French-German competitor. The merger
will make Sanofi-Aventis the world’s third largest drug company, behind a U.S.
company, Pfizer, and a U.K. company, GlaxoSmithKline. By opposing a rival bid
and approach by the Swiss-based Novartis Group, the French government, according
to critics, reinforced the belief that it plays a big role in all economic decisions in the
French market. Prime Minister Jean-Pierre Raffarin countered that “this does not
mean France will be nationalistic, individualistic and egotistical, but will be open to
projects with our European and other partners.”24 Nevertheless, the message that the
current government, like many of its predecessors, intends to play an active role in
the economy that on occasion may favor national control of business may not be lost
on foreign investors.25
The French government’s longstanding propensity to intervene in the
marketplace also is related, in part, to the on-going scandal and litigation involving
the French bank Credit Lyonnais. In the early 1990s, Credit Lyonnais, then a huge
state-owned bank, violated certain U.S. laws in an effort to purchase Executive Life,
a failed California-based insurance company. In January of 2004, the French
government was forced to plead guilty in U.S. District Court in California to fraud
and French taxpayers had to pay $375 million of the $770 million criminal case fines.
In a larger civil lawsuit that is scheduled for trial in February 2005, California’s
insurance regulator is seeking up to $5 billion in damages.26
Iraq War. In the era of the Cold War, there was considerable concern that trade
disputes between allies could undermine political and security ties. Deep differences
over the Iraq war between the United States and many of its allies, particularly France
and Germany, reversed this Cold War concern into whether foreign policy disputes
can weaken or undermine strong commercial ties.
23 Ibid.
24 Johnson, Jo, “Deal is a setback to investment,” FT, April 27, 2004, p. 18.
25 France’s newly appointed Finance Minister, Nicolas Sarkozy, in his first news conference,
called for relaxation of EU state-aid rules to allow national governments to expend public
funds on enhancing the competitiveness of key companies. See Bennhold, Katrin, “ Sakozy
Urges Europe to Forge Industrial Hubs,” International Herald Tribune (IHT), May 5, 2004,
p.1.
26 Carreyrou, John and Glenn R. Simpson, “Foreign Policy: How Insurance Spat Further
Frayed U.S.-French Ties — Paris Forks Over $375 Million in Executive Life Dispute; Gucci
Owner Pinned Down — California’s Civil Suit Looms,” The Wall Street Journal, April 16,
2004.

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CRS-10
Specific concerns that divisions over Iraq could spill over into the trade arena
arose in early 2003 with reports of U.S. consumer boycotts of French goods and calls
from some U.S. lawmakers for trade retaliation against France (and Germany). The
spike in bilateral tensions and hard feelings, however, appears not to have had much
impact on sales of the products most likely prone to being boycotted. These include
French wines, perfumes and toiletries, travel goods and handbags, and cheeses.27
As shown in Table 5, U.S. imports of these four categories of French products
all increased in absolute terms and as a share of total U.S. imports from France.
While total U.S. imports from France increased by 3.5% in 2002/2003, U.S. imports
of wine increased by 21.5%, imports of perfumes and toiletries by 17.8%, imports of
travel goods and handbags by 31.3%, and imports of cheese and curd by 20.0%. All
four categories also increased their share of total imports.28
Table 5. U.S. Imports from France of Selected Products,
2001-2003
% Share of Total
(Millions of
Imports from
% Change
HS # Description
U.S. Dollars)
France
2001 2002
2003 2001 2002 2003
2003/2002
2204 Wines of fresh grapes
826
933 1,133
2.7
3.3
3.9
21.5
3303 Perfumes and toiletries
511
609
717
1.9
2.2
2.5
17.8
4204 Travel goods; handbags
147
159
209
0.5
0.6
0.7
31.3
0406 Cheese and curd
72
90
108
0.2
0.3
0.4
20.0
Source: World Trade Atlas.
The trade data are somewhat surprising given some of the public opinion polling
that was done in the spring of 2003. One survey of 1,000 adult Americans, for
example, attempted to gauge consumer sentiments towards substituting U.S. or other
products for French products as a way of expressing opposition to the France’s
position on Iraq. Of those polled, 15% indicated they would likely participate in a
boycott. And a high percentage of this group tended to be white, middle-to-upper
income, more highly educated, and conservative — a profile similar to that of high-
27 This is an illustrative, not exhaustive, list of products that are likely to be targets of
boycotts because they have a strong element of brand identification with France, and tend
to be luxury items.
28 In January-February 2004, total U.S. imports from France were down 1.76% over January-
February 2003, but three of the four categories experienced healthy growth with perfumes
up 13.1%, travel goods up 5.5%, and cheese and curd up 25.5%. Wine imports, however,
were down 4.7% over the January/February 2003 level.

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CRS-11
income luxury brand buyers of such well recognized French products as Perrier,
Evian, Beaujolais, and Lancôme.29
In France and Germany, one poll found that two-thirds of college graduates
with annual incomes larger than $75,000 surveyed in December 2003 and January
2004, said that they are less likely to buy U.S. products because of the Bush
Administration. Yet many U.S. companies such as Ford, Kodak, and McDonald’s
say there has been no effect on sales as of May 2004.30
While there are few signs that goods and services clearly identified with France
or the United States are being boycotted, consumer sentiments as expressed in these
polls could be warnings of the potential fallout from foreign policy disputes.
Nevertheless, a substantial economic backlash appears unlikely due to the high
degree of economic integration. Effective boycotts would jeopardize thousands of
jobs on both sides of the Atlantic.
29 “American Consumers Split Over Substitutions and Boycotts of French,” Washington,
D.C. April 21, 2003. Fleischman-Hillard International Communications.
[http://www.fleishman.com/news/pro41703.html].
30 Romero, Simon. “War and Abuse Do Little Harm To U.S. Brands,” NYT, May 9, 2004,
p. A1.

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CRS-12
Appendix: Trade and Foreign Investment Data
Table A. Top Ten U.S. Trading Partners, 2003
(billions of U.S. dollars)
Trade Turnover
Country
(exports and imports)
Canada
394
Mexico
236
China
181
Japan
170
Germany
97
United Kingdom
77
Korea, Republic of
61
Taiwan
49
France
46
Italy
36
Source: U.S. Census Bureau.
Table B. France’s Top Trading Partners, 2002
(billions of dollars)
Trade Turnover
Country
(exports plus imports)
Germany
113.3
Italy
58.6
United Kingdom
56.6
Belgium
52.9
Spain
51.9
United States
48.3
Source: IMF Directions of Trade.

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CRS-13
Table C. Major U.S. Exports to France, 2003
(billions of dollars)
Rank
Harmonized System 2-Digit Description
Value
1
84-Nuclear reactors, boilers, machinery and mechanical appliances
4.9
such as gas turbines, computers, and office machinery
2
90-Optical, photographic, and medical instruments
2.0
3
85-Electrical machinery and equipment, such as integrated circuits
1.6
4
88-Aircraft, spacecraft, and parts thereof
1.5
5
29-Organic chemicals, such as hormones and glycosides
1.3
6
30-Pharmaceutical products
1.1
7
38-Miscellaneous chemical products such as laboratory reagents
0.5
8
87-Vehicles and parts
0.4
9
39-Plastics and articles thereof
0.4
10
37-Photographic or cinematographic goods such as photographic
0.3
film
Source: U.S. International Trade Commission.
Table D. Major U.S. Imports from France, 2003
(billions of dollars)
Rank
Harmonized System 2-Digit Description
Value
1
84-Nuclear reactors, boilers, machinery and mechanical appliances
4.3
such as gas turbines, bulldozers, and machinery for working rubber
or plastics
2
88-Aircraft, spacecraft, and parts thereof
4.2
3
30-Pharmaceutical products
2.5
4
22-Beverages, and spirits such as wine and liqueurs
2.1
5
85-Electrical machinery and equipment such as electronic
2.1
integrated circuits, T.V. equipment and video cameras
6
29-Organic chemicals such as heterocyclic compounds
1.5
7
97-Works of art, collectors’ pieces and antiques
1.4
8
87-Vehicles and parts
1.2
9
90-Optical, photographic, medical or surgical instruments
1.1
10
33-Essential oils, perfumes, and cosmetic preparations
1.1
Source: U.S. International Trade Commission.

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CRS-14
Table E. U.S. Total Exports to France by Top 25 States
(millions of dollars)
Rank
State
2001
2002
2003
All States
19,895
19,018
17,068
1
California
2,241
1,885
1,915
2
New York
1,481
1,317
1,261
3
Connecticut
1,416
1,178
1,095
4
Indiana
669
638
922
5
Texas
1,013
929
905
6
Puerto Rico
615
751
779
7
Ohio
1,448
1,068
768
8
Kentucky
432
795
740
9
Washington
1,252
1,953
684
10
Illinois
709
623
679
11
Massachusetts
865
922
619
12
New Jersey
658
622
602
13
Florida
399
388
397
14
Michigan
371
335
380
15
Pennsylvania
440
369
372
16
Wisconsin
366
341
371
17
North Carolina
348
252
360
18
Georgia
343
338
358
19
Arizona
632
442
350
20
Minnesota
335
353
328
21
South Carolina
261
320
274
22
Colorado
340
282
267
23
Alabama
317
230
221
24
Tennessee
279
241
221
25
Iowa
157
197
204
Source: U.S. Census Bureau.

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CRS-15
Table F. Foreign Direct Investment in the United States:
Top Five Countries
(billions of dollars)
Direct Investment Position on a Historical Cost Basis
1998
1999
2000
2001
2002
United Kingdom
137
154
278
269
283
France
60
90
126
148
171
Germany
93
112
122
164
137
Japan
134
154
160
150
152
Netherlands
92
125
139
158
155
Source: Survey of Current Business.
Table G. Employment of French Nonbank U.S. Affiliates,
by Top 15 States, 2001
Total Employment
578,600
Rank
State
1
California
63,600
2
New York
51,000
3
Texas
50,600
4
Illinois
29,600
5
New Jersey
28,400
6
Pennsylvania
26,800
7
Florida
25,800
8
Ohio
23,800
9
South Carolina
19,400
10
Indiana
18,900
11
Massachusetts
18,100
12
North Carolina
16,700
13
Georgia
15,700
14
Michigan
14,100
15
Virginia
14,000
Source: Bureau of Economic Analysis.

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CRS-16
Table H. French Foreign Direct Investment in the United States,
1990-2001
Gross
No. of French-
No. of
Assets
Sales
Year
Product
owned Companies
Employees
(billions $)
(billions $)
(billions $)
1990
1,759
338,000
176
82
N/A
1991
1,893
364,900
162
89
N/A
1992
2,327
363,400
273
102
N/A
1993
1,862
359,400
214
97
19
1994
2,124
376,200
211
112
23
1995
2,406
346,000
232
111
24
1996
2,521
420,200
283
132
34
1997
2,239
415,000
328
136
36
1998
2,250
527,500
390
142
37
1999
2,686
614,300
523
170
45
2000
2,986
654,800
484
195
55
2001
2,918
578,600
535
188
40
Source: U.S. Department of Commerce, Bureau of Economic Analysis.

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CRS-17
Table I. U.S. Foreign Direct Investment in France, 1990-2001
Year
No. of U.S.-owned
No. of Employees
Assets
Sales
Companies
(billions $)
(billions $)
1990
1,026
419,700
78
102
1991
1,052
439,300
83
103
1992
1,067
404,800
89
104
1993
1,072
400,300
82
99
1994
1,262
397,800
133
107
1995
1,228
416,000
141
125
1996
1,270
448,800
146
136
1997
1,299
464,400
150
130
1998
1,260
492,300
168
139
1999
1,269
575,300
205
144
2000
1,256
589,300
187
138
2001
1,286
578,300
191
135
Source: U.S. Department of Commerce, Bureau of Economic Analysis.

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