FRANCE NOW

French News in English

April 2000, Monthly, Issue No. 36, 50 Francs

• A revised Foreword to FRANCE NOW
• Cabinet Reshuffle
• Political reflections in the wake of the cabinet reshuffle
• The Roland Dumas Affair
• Household help
• THE FISCAL DRAG FIASCO, Interpreting Jospin's TV appearance on budget revisions: Did bankers rap his knuckles?

• Tiberi or not to be re----elected

• Preventing torture and inhuman treatment of prisoners
• Accounting and Tax of liberal professions

• Welfare Allowances

• School Canteens
• The Vital Card
• Women in senior bureaucratic positions
• The Defender of Children
• Road Accidents
• Economic indicators: compared to G-7
• Adapting laws of evidence to information technology and electronic signatures
• Civil Volunteers: undermining the minimum wage
• Jennifer Pinard
• Disablement and Death insurance of professionals
• France MP3 and SACEM get together
• Matra, DaimlerChrysler Aerospace, Construcciones Aeronautics to merge
• Agricultural subsidies
• Euronext in Euroland

If the Jack is Lang, who is the joker?

Cabinet Reshuffle

This is the sixth change made in the government since its creation in June 1997. The previous five changes were.

March 1998: Claude Bartolone was named Delegated Minister for the City. Nicole Péry was named Secretary of State for Professional Training.

October 1998: Jean Glavany replaced Louis Le Pensec as Minister for Agriculture and Fishing.

July 1999: Dominique Gillot replaced Bernard Kouchner (who went to Kosovo) as Secretary of State for Health and Social Initiatives. François Huwart was named Secretary of State for Foreign Trade.

November 1999: Christian Sautter replaced Dominique Strauss-Kahn as Minister for Economics, Finance and Industry.

January 2000: Florence Parly was named Secretary of State for Industry.

The reshuffle has come in the wake of the Roland Dumas affair (see article in this issue), the fiscal drag fiasco (see article in this issue) and the failure of two major reforms announced earlier in the month: that of the tax administration and that of the national education system (for the moment, non-issues).

Political reflections in the wake of the cabinet reshuffle

Many of the new incumbents have been Mitterrand's men. Using them is a double-edged sword. On the positive side, they have the necessary experience, contacts and power and should be immediately operational. Second, they may also create less mischief if in the government than if they were not included. Third, they have been provided difficult ministries: education (Lang) and the bureaucrats (Sapin), both dealing with France's public employees. By putting in Lang and Sapin in these positions, perhaps the hope is that they would bury themselves. On the other hand, there is a risk: they are a reminder of the Mitterrand times: years of socialist rule which the French people voted against.

Nevertheless, if Jospin wants to be President in 2002, he has to find his successor for Prime-Minister-ship. There are four clear candidates, at this point in time. Dominique Strauss-Kahn who is being kept out of public eye, so that he can do no harm to his positive image (the legal case against him would have to absolve him in sufficient time); Martine Aubry, who has done a great job with the 35-hour week and has seen her responsibilities increased; Laurent Fabius, who has already been Prime-Minister, who has been gloriously absolved by the Court of Justice of the Republic in March 1999 for the blood transfusion issue, and is being given a crack at Finance, Economics and Industry; and, of course, Jack Lang, with an outside chance.

Unfortunately, things are not so simple. In France, a Socialist President with a Socialist Prime-Minister makes the latter rather redundant and the politics between the two can become quite nauseating. So, Jospin President with a Socialist government may not be very appealing.

Jospin President with a Right-wing government may also not work out. Chirac, after years of losing to Mitterrand, developed a certain patience and acceptance of the limitation of his role as President, and has even been content to let Jospin accompany him all over Europe so that France can speak with one voice. Would Jospin fit into this image in, say, a Philippe Seguin or another Balladur government? Have the French recovered enough from Alain Juppé's wake to trust the right wing into government again?

There are therefore certain merits in the status-quo balance of power. The Chirac-Jospin cohabitation has been relatively satisfying because, being from opposite camps, they respect each other's boundaries, most of the time, allowing each to do a good job. The question is whether Jospin's new team will manage to maintain Socialist popularity ratings.

Of course, the men can be changed, there are alternatives: Chevènement President, if his health allows, with a socialist government. Pasqua President with a socialist government. Unfortunately, being nationalists, both of them are unlikely to be sponsored by Pro-Europe big business. Time will tell

THE FISCAL DRAG FIASCO, The Roland Dumas Affair

Did bankers rap his knuckles?

When the fiscal drag for 1999 was established last month at FF 31 billion, there was a major political discussion, involving all the political factions. Would these extra fiscal receipts, owing to better than expected economic performance, be used to lower taxes, increase expenditure or lower the deficit? It took a week for French political bigwigs to understand that they were debating a non-issue, that the matter was a fait accompli. Effectively, during 1999, the deficit had been lower by FF 31 billion. It was too late to increase 1999 expenditure or to lower 1999 receipts.

It probably took as long for bankers to digest this piece of information. They had budgeted secure risk-free interest income based on a certain budget. Normally, as far as lending to governments is concerned, the money is sure to materialise. If anything, the deficit is larger than budgeted, providing the bankers with a year-end Xmas bonus. But they had not counted on the fact that the economic recovery would create extra receipts and that this government was not used to taking action in recovery situations. At even 3%, the bankers lost a cool billion francs. They must have been unhappy and asked for heads to roll. Dominique Strauss-Kahn had already resigned, Christian Sautter was new

Yet another week later, it must have then occurred to the bankers that this situation is likely to recur. If France's economic recovery continues, there is likely to be another favourable fiscal drag for 2000. The real deficit for 2000 would then be lower than the forecasted. Interest received by bankers for 2000 would therefore be less than that promised by the government. Lionel Jospin must have been asked to comment on these fears and to indicate precise action being taken to ensure that this does not occur.

This can be the only background to Mr. Jospin's TV appearance on the 16^th of March. First, he estimated the fiscal drag for 2000. Considering the time it took for the government to estimate and finalise the fiscal drag for 1999, one wonders why the hurry for 2000! He then revealed that his estimate of extra tax receipts was at FF 50 billion. In short, if he took no action, deficit would reduce and the bankers can expect a shortfall in interest earnings of FF 1.5 billion. After letting the bankers chew on this for a couple of minutes, Mr. Jospin clarified that for 2000, there would be no deficit reduction, since this alternative had already been used in 1999. For 2000, therefore, either tax would be reduced or expenditure would be increased.

Precise! Mr. Jospin even decided to be precise (to further allay the fears of bankers?) indicating that complete homework had been done to ensure that the budget deficit is respected. Expenses would be increased by FF 10 billion, including notably FF 5 billion for the financing of December's disasters (cyclones, oil slick) which had not been included in the 2000 budget. The balance FF 40 billion would be tax-cuts. Yes, effective from this year itself, so that the budgeted deficit of 2000 remains the same. FF 11 billion would be reduction in the housing tax (taxe d'habitation), FF 11 billion would be reduction in income tax (on the lowest two tax-brackets) and the balance FF 18 billion would be a 1% reduction in VAT. The VAT would therefore be reduced to 19.6%. This would be operational from a date in April. In short, very socialist fiscal policy.

If Lionel Jospin's announcement did non appease the bankers, Christian Sautter's resignation must have. A pound of flesh! A head! A head!

Accounting and Tax of liberal professions

Unlike salaried employees, who had only till 15th March to file their tax returns, those in liberal professions (predominantly lawyers, doctors, accountants, architects) have till the 3rd of May to do so. In a couple, even if only one of the spouses works as a professional, even for part-time, the due date for the tax return gets extended to the 3rd of May. This is because the accounting and filing are more difficult.

The liberal professional has to file his tax return in two different places: according to his residence and his place of work. At the tax-centre near his residence, he has to file the complete income form, the 2042N (don't confuse it with the 2042S which is only for the "pure" salaried household). At his place of work, he has to file the 2035. Since the 2042N includes all forms of income, it also includes the income to be reported in the 2035. The tax calculations are based on the 2042N. The 2035 is associated with ensuring that all registered businesses in an area have complied with filing their tax returns.

To ensure that the liberal professionals declare their income correctly and to minimise work for the tax authorities, the government has come out with various measures. Firstly, the very small liberal professionals, with income less than FF 175,000 can go in for the "micro" regime. According to this, 35% of the income is deemed expenses and 65% is deemed net profit. No accounting of expenses is required. So, the professional needs to calculate only the total receipts.

For those who feel that their actual expenses are more than 35% of their income and for all those earning more than FF 175,000, the government has provided an incentive for having a "controlled" declaration. Essentially, this means that a certified organisation verifies the tax return for a fee. For submitting to this control, the government provides an abatement of 20% of the income up to an income of FF 707,000 (the maximum abatement is about FF 141,400). As a result, tax is then calculated on a lower income base. During their first year of adhesion to a Certified Centre, doctors are allowed to cumulate their standard deduction of 3% with the fiscal abatement. Thereafter, the tax authorities require the doctor to make a choice as to his deduction, even though the Conseil d'Etat has issued a guideline allowing the cumulating of the two advantages.

An additional tax-reduction is offered to those whose income is less than FF 175,000 only for adhering to the association and for using an accountant, limited to FF 6,000. If the fee for adhesion to a tax-centre is FF 1,000, this means that a professional can pay FF 5,000 to an accountant, often free of charge, because the FF 6,000 will be knocked off against the tax liability. Unless, of course, the professional made a loss.

For those established in Tax-free zones (usually poor areas, with high violence which the government cannot control), there is a five-year tax-holiday with a ceiling of FF 400,000. Obviously, Paris, Neuilly and other chic zones do not qualify.

In all such cases, the taxpayer has to go to the Tax-Centre of his place of work and ask for the 2035 form and submit it to the Certified Verification centre, ideally by end-March so that the Centre has adequate time to verify the returns of all its members.

Each liberal professional then has to decide how he is going to maintain his accounting: on receipts basis (easier) or accrual basis. He also has to decide if he is going to account for receipts and expenses gross or net of VAT. This decision does not apply to doctors and other members of the health sector (nurses, etc.) because their sector is exempted from the VAT. So, they don't perform any VAT formalities and simply claim the full expense as a tax-deduction.

A decision also has to be made on how to account for mixed expenses, i.e. those that are partly for business and partly for personal needs. These can be reintegrated either on an accounting basis (i.e. in each individual accounting entry, the payment is separated in personal and official expenses) or on a fiscal basis (this means one can enter the whole bill as an office expense and then, at the end of the year, a certain percentage of the expense is reduced (line 35 of 2035 Annex). The latter procedure is simpler for most cases. Many expenses can be allowed as partly business expenses, such as telephones, electricity, rent (based on area), etc. But the administration does not allow pro rata Taxe d'habitation to be included in business deductions, even if the Conseil d'Etat has ruled that this should also be allowed.

Many seemingly personal expenses may be allowed for deduction if one can prove that they are for business. Restaurant bills are allowed, if "reasonable" (but the name of the person taken out must be indicated on the back of the bill). But bills where one eats alone are not allowed as deduction, unless they are in the course of a business journey (to another city). Professional journals can be claimed as expenses, but general magazines cannot, even if they end up in a doctor's waiting room. Doctors can claim a deduction for the expense of washing of their white coats or gowns.

Before filling up the 2035 form, the accounting has to be maintained in the Exacompta 9620 register. Essentially, it is a double accounting register: all receipts have to be put in the bank column or the cash column and then allocated to the nature of the income. All expenses have to be entered in the bank column or the cash column and then allocated based on the nature of the expense. For example, in the receipts, the honorariums received in cash would go in the cash column and the honorarium column. The cheque payments to a Replacement doctor will go to the bank column and the Retro cession of Honorariums column. The receipts of reimbursements of Social Security will be allocated to diverse gains. All personal cheques have to be entered in the "personal" column. To simplify and minimise the accounting, it is advisable to open a separate account for the profession, using it only for professional expenses and business income. It is also advisable to transfer "cash balances" to a personal account after each month, so that the cash balance becomes zero, especially if there are no major cash expenses.

The columns have to be totalled monthly, the bank and cash balances established and reconciled monthly. What this means is that one has to ensure that every entry in the bank statement has found its way into the accounting register and that the balances correspond and that any differences are explained (usually, cheques deposited but not credited by the bank or cheques issued but not debited by the bank). An annual month-wise summary has to be prepared, along with the year-end bank reconciliation. The totals of the annual summary then form the basis of entries in the 2035 form.

Additionally, some certified centres require a cash-flow coherence statement to be filled before they approve the 2035 return. For this, the individual professional has to know his opening balance for the year (closing balance for the last year). This opening balance is zero for new professionals. A complication arises for those who were on a Micro-regime in the previous year and had a balance in their bank account. This opening balance is not necessarily that which should be used as the "opening book balance". Adjustments have to be made for 1998 cheques issued or deposited which have been debited or credited, respectively, by the bank in 1999. Often, the certified centres exempt this cash-flow coherence statement for first-time adherents. But they may ask the liberal professional for a copy of his bank statement.

Adapting laws of evidence to information technology and electronic signatures

The dynamism of the sector is testified by new initiatives, investments and entrepreneurial fancy. 111 start-ups in 1998 financed to the tune of FF 675 million were followed by 129 in 1999 financed to the extent of FF 872 million. Salaries in this sector are above the industry average. About 12,000 persons were employed in 250 new small enterprises in this sector. This is why the government is spending almost FF 3.6 billion in 1999 in promoting the new information society.

However, only 13% of large French enterprises did business over the net, although a larger number have their own web sites. The number of internauts in France has increased from 3.7 million in 1998 to 5.2 million in 1999. However, final consumers create only 20% of E-commerce, the balance being business-to-business trading. The prime reason is that traders and consumers are not sure of the safety and validity of their electronic signatures. This must be viewed in the background of a country where evidence and proof is free for administrative and penal law as well as private commercial agreements, but in dealings between businessmen and consumers and for any civil contract of more than FF 5000, written evidence is required. So, there is a need to validate electronic signatures and documents to bring them on par with written ones if the consumer and businessmen are to be held responsible for their transactions.

Work on validating electronic signatures started years ago. In 1996, the UN Commission on International Trade Law adopted a prototype law on electronic commerce encouraging the judicial recognition of the tools of electronic commerce.

In the EU, serious work started in mid-1998. After over a year of discussions, on the 13th of December 1999, the European Parliament passed a Directive (1999/93/EC) on a Community framework for electronic signatures. It was published in January 2000. The directive has been issued in a background where electronic commerce is considered the single most important growth engine of the European economy. To boost this growth, two actions are considered essential. First, electronic signatures need to be legally recognised, which would permit electronic business to be more fluid. Second, the technological development of the cryptology and signature authentication software and hardware, necessary for acceptance of electronic signatures, is also a business sphere on its own. Developing this would also boost other new certification and registering services. As a result, the directive also talked about promoting inter-State competition for this new cryptology industry. At the very least, the EU expects that the states would not set up barriers such as requiring prior State authorization of the cryptology service or of the certification-service-provider involved. Voluntary accreditation of such services is tolerated, even encouraged, because it could result in better standards.

Although the EU does not expect that all the legal provisions regarding evidence or contract law be harmonised across all the member-States, it does want them all to admit electronic signatures as evidence. This, in itself, would foster business and consumer confidence in E-commerce. Although private parties are free to enter into their own arrangements, in case of disputes, the judiciary should be able to accept electronically signed evidence. In addition to private contracts, electronic signatures will be used in the public sector within administrations and in communications between such administrations and citizens and economic operators, for example in the public procurement, taxation, social security, health and justice systems.

Specifically, the EU required that Member States ensure that advanced electronic signatures which are based on a qualified certificate and which are created by a secure-signature-creation device: (a) satisfy the legal requirements of a signature in relation to data in electronic form in the same manner as a handwritten signature satisfies those requirements in relation to paper-based data; and (b) are admissible as evidence in legal proceedings. It also required that Member States ensure that an electronic signature was not denied legal effectiveness and admissibility as evidence in legal proceedings solely on the grounds that it was in electronic form; that it was not based upon a qualified certificate issued by an accredited certification-service-provider; or that it was not created by a secure signature-creation device.

This is the background to the French law passed in March 2000 validating electronic signatures. If the law was passed so soon after the EU directive, it is because France did not wait for the directive before proceeding in adapting its legislation to the new technological environment. The Bill for amending the civil code was introduced in Parliament in 1998 at about the same time as in the EU. The most important French legal change is the new articles 1316, 1316-1,1316-2,1316-3 and 1316-4 and the modifications to the article 1317 of the Civil Code.

1316: The literal proof, or the written evidence, results from a series of letters, characters, figures or any other signs or symbols having an intelligible signification, whatever their support and mode of transmission.

1316-1: Writing in electronic form is admitted as evidence at the same level as writing on a paper support, provided that the person from whom it has been received can be duly identified and that the writing has been preserved in such natural conditions as required to guarantee its integrity.

1316-2: When the law has not fixed any other principles, and in default of a valid agreement between the parties, the judge decides conflicts on literal evidence by determining by any means the most reasonable claim, whatever the support.

1316-3: Writing on an electronic support has the same persuasive force as writing on a paper support.

1316-4: The signature necessary for completing a judicial deed identifies the person affixing it. It is evidence of the consent of the parties to the obligations stemming from the document. When a public officer affixes it, it confers authenticity to the deed.

When it is electronic, it consists of use of a reliable process of identification guaranteeing its link with the deed to which it is attached. The reliability of the process is presumed, till otherwise proved, when the electronic signature is created, the identity of the signatory has been ensured and the integrity of the deed has been guaranteed, under conditions fixed by decree of the State Council.

In article 1317, a final clause has been added: It (an authentic deed) can be established on an electronic support if it is established and preserved under conditions fixed by decree of the State Council.

Germany and Italy already have a law on electronic signatures. Luxembourg and Spain will soon have one. Belgium, Denmark and the UK are working on the issue.

Civil Volunteers: undermining the minimum wage

The civil draftees were all paid different monthly stipends, usually ranging from FF 531 to FF 2600. Effectively, this was quite cheap labour, notably for the international cooperation missions in the administration or, since 1985, in enterprises. The latter was started to boost the performance of small and medium French exporters, but slowly, the large industrial houses, especially banks and oil companies, began using this supply of cheap labour. Normally, there are more than 3000 civil draftees working in 800 French enterprises abroad. Of these, less than 600 (20%) are working in 300 small enterprises (40% of the total). Two-thirds are working in a few enterprises with an annual turnover of more than FF 1.5 billion. 65% of the "recruits" are working in Europe or North America. 70% of those in enterprises get offers of employment in the host enterprise on completion of their service. This does not necessarily indicate the success of the system: it is possible that those who opt for this system are those who have already been assured employment in the enterprise but have to complete their obligatory universal service.

With the coming in of the European Union, and the consequent peace established with all its neighbours, there was little need for France to maintain an elaborate defence force and to insist that every able male take almost a year off for national defence service or, if he wants, national civil service. So, since October 1997, France has been dismantling the compulsory service system and maintaining an army of professional volunteers. The last contingent of military draftees will be in 2002. A token one-day universal national service has been maintained for information of the youth. However, France has been lax in scrapping the civil service because of vested interests involved, partly the fact that they represent cheap labour for the receiving service organisation and partly because unemployment is about to increase by 250,000 persons in 2002 (absence of military and civil draftees).

The law on civil volunteers, passed last month, is the last phase in the transformation of the compulsory universal service into an optional volunteer based civil service. It is considered necessary to continue the tasks started by the compulsory civil service. Of course, the French do not expect the new system to remain as attractive to French youth. Effectively, the success of the old obligatory civil service system was based largely on the reject of the military service. In the new voluntary service, there is little to attract the youth. Nevertheless, the government expects it to appeal to a certain class of idealists who have a need for personal commitment. In support of this, the government notes that the system already exists in Germany, UK and USA. Which is encouraging as well as compelling: to compete competitively, France must find similar low-cost labour sources. The most ambitious system is that of the EU: it aims at offering 100,000 youths a stipend of about FF 1300 per month as well as cost of transport to another country of the EU or elsewhere for social missions, at a total budgeted cost of Euro 47.5 million.

To compensate for its low appeal, the law has attempted to widen the net: the French civil volunteer service is open to men and women in the age group of 18 to 27, nationals of any EU country or a European Economic Area member, who have conformed to the universal national service obligation of their country. In particular, women are invited to participate on an equal basis. In the past, women have contributed less than 1% of the force. The hope is that there will be some takers.

The civil volunteers will get a uniform stipend paid by the Ministry to which they are attached or by the association or enterprise using their services. The stipend, legally fixed at "half of a gross index of 244", works out to about FF 3500 per month, i.e., about half of France's minimum wage, the SMIC. There will be no tax on this, not even the CSG (Contribution Sociale Généralisée) and RDS (Remboursement de la Dette Sociale). This stipend can be increased in certain cases, to pay for subsistence, equipment or housing. What is significant is that the volunteers are completely covered for social security of all sorts (illness, maternity, handicap, work-accidents and professional illnesses). This social security is even extended to their dependents. Moreover, the period of civil volunteering is also considered in the calculations of the old-age insurance. The social security cover, estimated at a paltry FF 1,750 per year but still to be fixed by decree, is at the expense of the beneficiary organisation. The period of volunteering, from 6 to 24 months, can be extended once, without exceeding the maximum of 24 months. It can be terminated for force majeure, for grave error of the volunteer or of the service organisation, in the interest of the service, or, if the person finds full-time employment. An amendment that the person could opt out of the contract was dropped, partly because enterprises did not want to train a person and then find he has left, partly because people may use the system to get a free ticket to a foreign country and then quit.

The scheme could be particularly interesting for young people who are unable to find a job. They can become Civil Volunteers and get paid a stipend by the concerned ministry who could then send them to a public administration or to an enterprise. The cost to the enterprise is less than half of the minimum wage. The advantage to the person is that he is occupied, has a minimum stipend and all the social security cover, and has a chance to prove his worth. It is particularly interesting for those who want to travel abroad immediately on finishing their studies. Compared with the huge cost of expatriating an employee, a French enterprise may accept an inexperienced youngster on a small stipend. If the person is capable of being absorbed by the enterprise, or if he or she finds another job, the person can quit the civil volunteering system. The system of civil volunteering will be explained to students and the youth during their one-day national service obligation.

To promote the new formulation, the government needs to distinguish it from the Youth Employment (Emploi Jeunes). Effectively, the civil volunteers will work for a maximum of two years whereas the Youth Employment contracts are for five years. The latter are mainly unskilled tasks, while the Civil Volunteer may have a dose of prestige attached: technical skills for territorial development, international experience, experience with NGOs. Whether it will work is an open question.