If there’s one country that is almost guaranteed to elicit a strong reaction from a British exporter, it’s usually France says Tim Hiscock. Maybe this is just a part of our long history of rivalry, our common roots as formal colonial powers, or perhaps it’s something more? Between the years 1193 to 1898, Britain (or England) and France were at war more than thirty times, covering a total of over 200 years of fighting. Technically, the period between the Fashoda Incident of 1898 and the present day is the longest period of unbroken peace the two countries have ever known.
Hopefully, the days of armed conflict are a thing of the past, but anecdotally, France seems to crop up in conversations with exporters as a complicated and sometimes frustrating market. On the face of it, this is not easy to understand. France is the world's sixth largest economy (perpetually neck and neck with the UK, it very much depends on where we put the goalposts as to who is currently ahead), and the UK's fourth largest export market for goods. In 2018, UK exports to France reached £24 billion, almost half the value of exports to the United States, despite France having barely a fifth of the USA’s population. The balance of trade between France and the UK is close to equal, with France having an advantage of just over ten percent last year, much closer to equilibrium than the UK is with Germany, The Netherlands or China, for example, 300,000 French citizens are thought to be living in the UK, and two-thirds of that number of Brits are domiciled in France.
As common members of the European Union, trade has grown substantially, even though such growth has been eclipsed by emerging markets in Asia over the past decade or so. Not only do British exporters enjoy the relative simplicity of the Customs Union in trading with France, but the common technical standards theoretically remove most of the non-tariff barriers that often plague successful international trade.
While there are inevitably a lot of challenges in trading with a large, complex market such as France, there are perhaps two main areas that are the biggest stumbling blocks:
The French economy is dominated by very large businesses who tend to use their strength to maintain their market share. This is true across all key sectors from retail to health, manufacturing and services. Business activity is strongly regulated in France, employees enjoy a high level of protection and the larger companies strive to protect their interests. The World Bank’s Ease of Doing Business annual report ranks France at number 32 out of 190 countries. While hardly a disastrous picture, this does put France below Russia, Thailand and Mauritius. The UK was placed 9th in the same study, and Germany 24th. A foreign supplier needs to understand the political realities of this market and plan their strategy accordingly.
The second main obstacle is cultural. France was a founder member of the European Economic Communities and, notwithstanding the period known as the “empty chair crisis” when President De Gaulle withdrew from meetings in protest at Common Agricultural proposals, has generally been an enthusiastic participant. France adopted the Euro when the currency was launched in 1999, is part of the Schengen free travel area and is the second largest contributor to the EU budget. In spite of this, French culture remains very strong. The government seeks to protect the country’s language, and methods of doing business are profoundly affected by French values that put emphasis on formality, hierarchical structures and the importance of personal connections. An ability to communicate in French is generally essential, but the cultural aspects go much deeper than that.
It's often when a business fails to understand these aspects of French business culture that they run into difficulty. Introducing an innovative product or service is, of course, achievable in twenty-first century France, but a strategy that has worked elsewhere might not find favour here. French people, it has been said, are very happy to be French and it's the exporter who understands and respects this who is the most likely to succeed.
The rivalry between France and the United Kingdom is perhaps reaching a new chapter as one strives to extricate itself from the European Union while the other undergoes potentially drastic changes under its reforming young President Emmanuel Macron. The two economies are in strikingly similar positions in global terms, with almost equal economic output, similar economic profiles (both economies are broadly made up as 80% services 20% manufacturing, with France still having a slightly larger agricultural sector). Both countries are G7 countries, both are nuclear powers, both have permanent seats on the United Nations Security Council.
But France perhaps faces the greater economic challenges. Growth has been slow since the financial crisis of 2008, and France is left with high unemployment (finally fell into single figures in 2017, but at 8.8% in June 2019, still more than double the rate in the UK). France has only recently succeeded in getting its national deficit below the Euro area approved three percent of GDP. Macron was elected in 2017 on promises of radical reform, but his actions have met with widespread protests. Macron’s strident, but sometimes uncertain steps have strongly divided opinion in France. The President’s Party Republique en Marche!, finished second in the recent elections for the European Parliament, just one percent behind Marine le Pen's far-right Rassemblement National who themselves had toned down their previous anti-EU stance, urging radical reform rather than a possible French exit or Frexit. The two parties between them attracted less than half of the votes, with various Green and left-wing groups being the main beneficiaries of their decline.
Macron’s vision was to deliver root and branch reform, weakening the strict employment protection, reducing public spending and lowering taxes. His programme has met with angry protests across the country, with the Gilets Jaunes (yellow vests), inspiring large and sometimes violent protests demanding lower fuel prices, and an increase to the minimum wage. The protests appeared to achieve some success with planned fuel price increases being scrapped. Recently, polls suggest that Macron’s popularity has recovered. Falling to an approval rate of just 25% at its lowest, the figure has recently returned to 40%.
There are perhaps signs of results from Macron’s efforts as well. A recent report found that France attracted a greater number of manufacturing and R & D investments than any other EU country during 2018. The report from EY Consulting identified 144 major R & D contracts and 339 manufacturing agreements, putting the country ahead of both the UK and Germany for the first time. And although the increase was only one percent over the previous year, in a climate of uncertainty where most countries saw the level of investment fall substantially, this should probably be seen as some vindication for Marcon’s medicine. For comparison, the number of foreign investments in the UK fell by 13% in 2018.
And yet, whatever the outcome of these reforms, it seems certain that the essential characteristics of the country, its culture and practices, will largely remain intact. Charles de Gaulle is recorded as saying shortly after his resignation in 1969, “I cannot prevent the French from being French.”
Brexit must be expected to have some effect on the trade relations with Britain’s closest continental neighbour. If the UK leaves the EU without a deal, then the imposition of tariffs seems inevitable, even if only temporarily. And even if a trade agreement is achieved, exports and imports of goods will be subject to regular clearance regulations, something that doesn’t currently apply on trade with EU countries. To what extent this might deter trade remains to be seen. The UK’s biggest export to France in 2018 was aircraft parts, representing almost 20% of all exports by value. Other key exports were machinery and vehicles. Top French imports to the UK were vehicles, in particular cars, followed by machinery with beverages third.
Of course, what Brexit will not change is the close physical proximity that the UK enjoys with France, a factor that economists argue is prevalent in most trade relationships. The UK enjoys a long, if often turbulent, common history with France and the way in which the two countries are long-time rivals in economics, trade, culture and sport perhaps does more to unite us than divide us. While the future is uncertain, there seems little doubt that France will continue to be a major trading partner in the future, and a valuable market for British exporters.