PARIS --- In France, the events of the last few years, from the “Gilets Jaunes” protests to Covid-19 lockouts to the war in Ukraine, have had an important effect on political stances.
One word, in particular, is now making headlines: “souveraineté” (sovereignty). Once mostly used as a concept in political theory, it tended to become a politically contentious term in the 2000s and 2010s, when it was mostly used by radical, often euro-skeptical political parties. In the first round of the 2022 presidential election, it is interesting to note that 77 references to sovereignty could be found throughout the platforms of the five main candidates, ranging from seven references for both President Macron and center-right candidate Valérie Pecresse, to 46 references for nationalist candidate Eric Zemmour.
In 2017, during the previous presidential campaign, references to “sovereignty” were less than half, with just 32 citations, from none at all in the platform of Emmanuel Macron to a maximum of 15 in the program of the radical left candidate Jean-Luc Mélenchon.
The threats resulting from globalized supply chains and the fear of seeing France downgraded in the global value chain, are turning sovereignty into a sort of “miracle antidote” against naivety. In a much more measured way, Louis Gallois, former CEO of Aerospatiale then Airbus, rightly pointed out during a conference organized in April 2021 that while “sovereignty will always be incomplete”, it remains a key prerequisite to “the creation of a balance of power that allows France to speak as an equal to others.”
FDI Screening regulation: the extension of the domain of sovereignty
We take sovereignty here in the strategic realm, focusing on its industrial and technological underpinnings. It is important, for France as for any country, to determine which activities and technologies it should ensure to maintain control over, in view of safeguarding its agency on the international stage and being able to carry out its core missions domestically.
The scope of these “sovereignty domains” has largely varied over the years, tending to widen as shocks of various nature erupted. The evolution of foreign direct investment screening rules is an interesting indicator of this evolution.
The first such law during the last two decades, crafted by Prime Minister Dominique de Villepin in 2005, identified a total of 11 activities, all related to the fields of national defense or homeland security. In 2014, as the sudden buyout of Alstom’s energy branch by General Electric became known to the French public, then Minister of the Economy Arnaud Montebourg published an order extending this law to cover five new domains, among which energy and electronic communications.
Between 2018 and 2020, the current Minister of the Economy Bruno Le Maire further enlarged it to 5 other domains, including AI, space activities and semi-conductors.
It is also worth noting that the EU’s stance has also drastically changed over this period of time: while Commissioner Michel Barnier warned against temptations of “protectionism” in 2014, the EU promulgated in March 2019 a “framework for the screening of FDI into the Union”, encouraging all member states to create such laws and cooperate through exchange of information when necessary.
The widening of FDI screening law in France
Identifying critical needs
While implementation of FDI offers an important defensive tool, a more proactive approach consists in identifying the critical dependencies likely to be leveraged by adversaries to reduce the agency of France.
Here again, French governments have adopted a widely-encompassing approach, through the designation of 12 “Secteurs d’importance vitale” in 2006. As part of this policy, around 250 organizations were designed as “vitally important operators” (OIV), notably obliging them to establish special protection plans and disaster recovery plans for their most critical assets. While the aim of the present article is not to reproduce these lists of sectors and organizations, nor to give an exhaustive account of the most critical elements of France’s industrial sovereignty, three rules can be highlighted.
First, it is necessary to secure the supply of goods and raw materials required to sustain industrial production at the national level. As demonstrated by the consequences of the war in Ukraine, as well as preexisting shortages, metals like titanium, palladium or lithium, but also critical components such as semi-conductors, can easily be used by suppliers against their adversaries. Second, highly complex systems, requiring advanced skills and massive R&D investments, must not rely upon foreign expertise. For instance, the fact that the Rafale is powered by the 100% French-made M88 engine is instrumental for the French Air Force to operate in full autonomy; not to mention that it is an inherent selling point in several export markets. Third, governments and manufacturers must be wary of seemingly insignificant components which could submit them to extraterritorial foreign export regulation, such as the US’ ITAR and EAR, exports being critical to the French aeronautical firm’s business models as well as French foreign policy.
Establishing corporate and government responses
Discussing these orientations, a top-level French aerospace industry executive recently outlined some of the strategies put in place regarding sovereignty requirements. A key point is the vertical integration of the most vital elements in the supply chain. The recent acquisition of Aubert & Duval by Airbus and Safran, in order to secure their supply of nickel superalloys, answers both threats related to the supply of components from abroad, and with the risk of falling under foreign export laws.
The diversification and multiplication of sourcing is another important part of such strategies, while not always easy or even possible to implement, as illustrated by Airbus’ challenge to find alternative sources of titanium supply in the face of sanctions against Russia (but there again, there are ways to mitigate the dependency). The French government is supporting these actions, through the deployment of various policies, such as innovation support schemes, in order to further the array of skills mastered on its territory (e.g., “ASTRID” for the funding of defense innovation, or MAMA to limit Titanium use).
International cooperation programs and “strategic partnerships” throughout the globe also help where the multiplication of supply sources is harder to achieve. European defense industrial cooperation programs constitute the prime example of such a strategy for France, aiming to structure a web of “selected” interdependencies.
The limits to this approach
While A&D companies’ policies of vertical integration and diversification are undoubtedly the path forward, a lot of political obstacles remain in the way of the government’s strategy, as often highlighted by debates around ESG criteria for the funding of the defense industry.
The path of European industrial cooperation, in particular, is always complex and raises several controversial issues - including but not limited to IP rights, worksharing, sourcing or re-export-rules - that are yet to be resolved. One example is the future combat air System discussed between Spain, Germany and France. While Safran managed to keep its leadership on the most complex and critical parts of the engine against its German MTU and Spanish ITP counterparts, such an agreement is yet to be found between Dassault Aviation and Airbus regarding the main fighter design.
Sharing knowledge and know-how with coopetitors sometimes counter-intuitively appears as a way to safeguard French sovereignty, it remains a red line for manufacturers, which legitimately fear for their competitive edge.
The issue of export control is also critical, with Germany pushing for extensive rules, which some fear could restrict sales of future European defense systems to NATO countries only. Protection from ITAR and EAR rules has also been the object of a political struggle, with France pushing for the creation of a program designed to produce the concerned parts onshore, but so far without success.
As a political and economic concept, sovereignty is often contentious. Just imagine how tricky it gets when you drop down a level, to concrete industrial and technological issues….