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A French protectionist ramp?

Posted by Richard Friday, June 04, 2004

Xenophobic, inward-looking and devious – no not Britain, but France. In today's Times business section, the admirable Patience Wheatcroft recounts that the French government, under the aegis of its finance minister Nicolas Sarkozy, is ordering food retailers to cut their prices by an average five percent.

But this is not what it seems. She recounts that Carrefour, the world's second-biggest retailer, and rivals such as Casino, are not objecting too much. "Prices of big brand groceries tend to be up to 13 percent higher than in next-door Germany, in part because of state-imposed laws and practices designed to protect small shops", she writes. "Under the Loi Galland, retailers cannot sell below their purchase costs. There could be no baked bean wars or 10p sliced white loaves in Paris, in the unlikely event that consumers would be interested."

So much of course for the euro and its supposed great advantage of bringing "price transparency". But that is not the main story. We hear from Ms Wheatcroft that:

"Discriminatory deals extracted from suppliers by the top retailers are also hidden in the questionable form of rebates and paying for shelf space, leaving the invoiced purchase cost relatively high. The Loi Galland then ensures that this is passed on to consumers. The double-action process swells hypermarket profit margins, but is losing them business to deep discounters who rely on own brands."

And here comes the hidden agenda. Sarkozy's plan to make the loss-leader law apply only to realistic purchase costs "ostensibly aims to stimulate the French economy by encouraging consumers to buy more cheap goods", writes Ms Wheatcroft.

Only then comes her really delightful and illuminating comment, which gives the game away. "There are other motives", she observes. "Given M Sarkozy's insistence on protecting French firms from foreigners, even from the rest of the EU, it seems more than coincidence that he is acting just after Wal-Mart, America's king of the loss leader, declared its interest in cracking the profitable French market."

In other words, what we are seeing is yet another protectionist ramp. Last week Lee Scott, Wal-Mart's chairman, was in Brussels complaining about continental restrictive practices, where in Germany Wal-Mart's operations are running at a loss. But while German law can be sustained under EU law, French restrictive practices can be challenged as bad for consumers. Thus Sarkozy is moving to pre-empt action from Brussels.

As for protecting the consumer interest or opening up the market to competition – especially to US interests – forget it. This is France we're talking about, home of the unlevel playing field.