large amounts deposited for a year or more are permitted to vary with market conditions. Interest may not be paid on checking accounts and the rate paid on savings accounts has been limited to 4 4-1/4%, while 1-year deposits in amounts below $20, 000 may receive 4-1/2%. Nevertheless, government bond yields rose from about 5% in the mid-1960s to 8% in 1970 and 9-1/2 at the beginning of 1974. On the secondary market, in the summer of 1973, public and semi-public sector bonds were yielding 9.33% and bonds issued by private companies were up to 9.45%. Non-recurring and other charges may add up to 2% annually to the cost of the bond to the issuer. Medium-term credits (3-7 years) are offered at rates that vary by 3 full percentage points and more, depending on the borrower. At their low point in mid-1972, the range was between 6.85 and 10.35%; the range was 9.75-13.25% in August, 1973. Except for the bottom range of the medium-term credits, these rates are relatively free and responsive to the market, with the high 1973 rates reflecting inflationary trends. Over the same period, the National Credit Bank has varied its equipment loan rates only within 8.5 and 9.5%. The government may pay an interest rate subsidy on such loans. The Economic and Social Development Fund made loans at 6.5% early in 1973, rising to 6. 75 in mid-year and 7.25% by the end of the year. Official lending for especially favored purposes such as agriculture, hotels and housing were available at that time for between 4 and 7%. In mid-1973, the Central Bank was rediscounting medium-term export credits at 4.5%, though export claims on other Common Market countries had to be discounted at the regular rate of 9.5%. The French government owns a substantial section of French industry, primarily in sectors considered to be national interest industries. Its share is large not only in the case of public utilities and atomic energy but also in oil, coal, chemicals, automobiles, air and maritime transport and aircraft manufacturing. While their investments are regulated and have expanded less vigourously than the private sector, publicly-owned enterprises have enjoyed favored financing conditions. They may receive capital grants, cheap government credit and even operating subsidies in some cases. They do not normally provide a return to the government on its equity. Government expenditures have risen from about $26 billion in 1967 to about $39 billion in 1972, considerably less than the growth in GNP, as some financing functions were transferred to public and semi-public financial institutions. The government, however, continues to make substantial direct investments and to finance a substantial volume of investment by public and private enterprises. Between 1967 and 1970, investment financing by the government averaged around $7.5 billion per year. Capital grants totalled over $750 million in 1970 and net lending in 1969 to public and private enterprise totalled another $480 million. Gross lending by the Economic and Social Development Fund alone for programs in the less-developed regions of France totalled almost $700 million. The government also pays 25% of the cost of a new investment in such regions and 20% of the cost of expanding an existing investment. 62-989 O-76-43 (3) Anti-Trust Laws French anti-trust laws are essentially limited to restrictive practices which tend to increase prices, such as tie-in sales, sales on discriminatory terms and refusals to deal. Concerted actions to improve or extend markets or to assure economic progress through rationalization or specialization are specifically exempted. The EEC anti-trust rules are apt to be of increasing effect on the anti-trust provisions of the member states. They do not apply to corporate mergers or acquisitions, but they do prohibit agreements and concerted practices affecting trade as well as abuse of a dominant commercial or economic position. The EEC has sought to promote integration of firms to achieve multi-national enterprises of a size more likely to be effective in worldwide competition. The EEC rules seek to promote European business on the world market. They only prohibit practices that would tend to prevent or distort competition within the EEC. Lawful cooperation among enterprises would include exchange of information and joint market research, joint research and development, joint use of production, storage and transportation facilities and joint ventures among non-competitors or among competitors who are unable to execute a project by themselves. The sixth Plan sought to produce an export surplus on trade account on the order of $2 billion a year. Another target is to increase the export of services, particularly insurance and maritime transport. French export promotion efforts have long included the controversial rebate of value-added tax. Moreover, companies exporting on the basis of deferred payments may de fer taxes equal to 10% of the outstanding balances of such credits. The government has also sought to assure that export credit will be available at rates of interest and terms of repayment comparable to those offered by other industrialized exporting countries. Until 1971, the Bank of France financed the first five years of export credits and the Treasury financed all maturities beyond five years. For the Sixth Plan, the quasi-public French Foreign Trade Bank became the sole agent for channeling the rediscounting of export paper to the Bank of France (3- to 7-year maturities) and to the Treasury (over-7-year maturities) Since the beginning of 1973, the Treasury ceased financing maturities over 7 years and the Foreign Trade Bank floated bond issues for that purpose. The Treasury was to subsidize the difference between the rate charged by the Foreign Trade Bank and the rate at which it borrows money. The Bank's mid-1973 bond issue carried an 8.9% coupon. The commercial banks were to finance all maturities over 3 years and to extend all required credit. The Bank of France continued to offer a low rate of rediscount on medium- and long-term export credits to countries outside the EEC area. As a result, in mid-1973, suppliers could finance their export credits at rates varying between 5.8 and 6.35%, depending on the length of the maturity. Taking into account the cost of credit insurance and other charges, a seven-year supplier credit would cost the buyer 7.5 to 8.5%, depending on the credit worthiness of the importing country. Government Credit Insurance (5) The French Insurance Company for Foreign Trade (COFACE) is a quasi-public company that offers insurance to French exporters, contractors and foreign investors. It administers insurance programs either for the account of the French government or for its own account. Its insurance may cover political and normal commercial risks, exchange rate risks and the risks of an abnormal rise in French domestic prices during the period between signing of the contract and completion of its manufacture. The buyer is usually expected to pay 10% in cash and COFACE usually insures 85% of the credit on commercial risk and 90% on political risk. The inflation (economic) risk insurance protects suppliers on long-term contract prices in the event that their costs prove to increase by more than 3.5% a year. COFACE reimburses the contractor for higher costs for an insurance premium of one-half of one percent per year. The 3.5% a year inflation base rate is geared to specified price indices and applies to 80% of the value of the export credit, on the assumption that 20% represents fixed costs not subject to escalation after contract signing. Given actual inflation rates in France, the economic risk insurance represents a substantial subsidy, particularly to French exporters engaged in contracting for delivery of goods after the lapse of several years. Contractors need build no more than 3.5% a year price escalation into their contracts, plus the insurance premium. The subsidy equivalent of such insurance may be stated as follows: Lag Between Contract and Completion Inflation |