Abstract
France: Selected Issues
III. Barriers to Competition1
Though close to the OECD average, France’s product market is more regulated than in comparable large European countries. Barriers to competition are particularly high in services, which now account for about 79 percent of the economy. The Macron law would be an important step forward, though rigidities remain.
1. Barriers to entry and competition remain an important constraint on France’s growth potential. According to the OECD’s indicators of product market regulation, the regulatory burden is high and, over 2008–13, little progress was made on product market reforms. Administrative requirements and legal protection of incumbents constitute barriers to entry that not only reduce competition but also hamper job creation and affect the growth of startups. Such entry barriers are particularly significant in the services sector (Figure 1). France is one of the few countries in the euro area where regulation of professional services became more stringent over the past decade.
France: Product Market Regulation in 2013
Citation: IMF Staff Country Reports 2015, 179; 10.5089/9781513519579.002.A003
Sources: OECD1/ Administive burdens on creating a public limited company.2/ Pervasiveness of barriers to entry in 30 business sectors as a share of sectors in which there are explicit legal limitations on the number of competitors.3/ Entry barriers in professional services, freight transport services, and retail distribution.4/ Government stakes in the largest firms in electricity, gas, rail transport, air transport, postal services and telecommunication.France: Product Market Regulation in 2013
Citation: IMF Staff Country Reports 2015, 179; 10.5089/9781513519579.002.A003
Sources: OECD1/ Administive burdens on creating a public limited company.2/ Pervasiveness of barriers to entry in 30 business sectors as a share of sectors in which there are explicit legal limitations on the number of competitors.3/ Entry barriers in professional services, freight transport services, and retail distribution.4/ Government stakes in the largest firms in electricity, gas, rail transport, air transport, postal services and telecommunication.France: Product Market Regulation in 2013
Citation: IMF Staff Country Reports 2015, 179; 10.5089/9781513519579.002.A003
Sources: OECD1/ Administive burdens on creating a public limited company.2/ Pervasiveness of barriers to entry in 30 business sectors as a share of sectors in which there are explicit legal limitations on the number of competitors.3/ Entry barriers in professional services, freight transport services, and retail distribution.4/ Government stakes in the largest firms in electricity, gas, rail transport, air transport, postal services and telecommunication.
Professional Services Regulation
(In index value)
Citation: IMF Staff Country Reports 2015, 179; 10.5089/9781513519579.002.A003
Professional Services Regulation
(In index value)
Citation: IMF Staff Country Reports 2015, 179; 10.5089/9781513519579.002.A003
Professional Services Regulation
(In index value)
Citation: IMF Staff Country Reports 2015, 179; 10.5089/9781513519579.002.A003
Overall PMR Indicator by Country
(In index number, 0 to 6, lower indicates less restrictive)
Citation: IMF Staff Country Reports 2015, 179; 10.5089/9781513519579.002.A003
Overall PMR Indicator by Country
(In index number, 0 to 6, lower indicates less restrictive)
Citation: IMF Staff Country Reports 2015, 179; 10.5089/9781513519579.002.A003
Overall PMR Indicator by Country
(In index number, 0 to 6, lower indicates less restrictive)
Citation: IMF Staff Country Reports 2015, 179; 10.5089/9781513519579.002.A003
2. Forward linkages. Barriers to competition in services tend to limit incentives for innovation and quality, reduce productivity growth, and raise the cost of services. Because services are by far the largest input for production, this affects the rest of the economy, including the competitiveness of enterprises in the tradable sector (Hallaert, 2013). Services account for 54 percent of economy’s consumption of intermediates. “Other Business activities”, which covers many regulated professions, is the largest input for the economy as a whole and for the manufacturing sector, followed by wholesale and retail trade (Table 1). As a result, their forward linkages (i.e., the impact that productivity improvements in these two sectors have on the cost of other sectors of the economy) are larger than for other services.
Input as a Share of Gross Output
(in percent)
Input as a Share of Gross Output
(in percent)
| All Economy | Agriculture, hunting, forestry and fishing | Mining and quarrying | Industry Construction | Electricity, gas, and water supply | Services | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| All inputs | 48.8 | 54.8 | 58.7 | 73.1 | 56.0 | 61.8 | 37.4 | |||||||||
| Agriculture, hunting, forestry and fishing | 1.7 | 18.0 | 0.0 | 4.3 | 0.9 | 0.3 | 0.2 | |||||||||
| Mining and quarrying | 1.4 | 0.2 | 4.1 | 4.0 | 0.9 | 11.7 | 0.0 | |||||||||
| Manufacturing industry | 16.5 | 20.4 | 32.0 | 40.0 | 21.6 | 8.7 | 6.5 | |||||||||
| Construction | 1.5 | 0.3 | 1.0 | 0.3 | 12.0 | 4.1 | 0.9 | |||||||||
| Electricity, gas, and water supply | 1.4 | 1.5 | 2.2 | 1.4 | 0.3 | 20.3 | 0.7 | |||||||||
| Services | 26.3 | 14.4 | 19.4 | 23.0 | 20.3 | 16.5 | 29.1 | |||||||||
| Other Business Activities | 7.8 | 1.7 | 2.2 | 6.5 | 7.8 | 4.5 | 8.7 | |||||||||
| Wholesale and retail trade; repairs | 3.6 | 6.1 | 7.1 | 6.4 | 4.7 | 1.0 | 2.3 | |||||||||
| Finance and insurance | 3.6 | 3.0 | 2.0 | 1.6 | 3.0 | 1.9 | 4.5 | |||||||||
| Transport and storage | 2.9 | 1.4 | 3.4 | 2.6 | 1.4 | 2.3 | 3.3 | |||||||||
| Real estate activities | 1.9 | 0.0 | 0.3 | 0.6 | 0.1 | 0.3 | 2.7 | |||||||||
| Post and telecommunications | 1.4 | 0.0 | 0.4 | 0.3 | 0.3 | 0.5 | 2.0 | |||||||||
| Other community, social and personal services | 1.1 | 0.1 | 0.7 | 0.6 | 0.5 | 1.2 | 1.4 | |||||||||
| Computer and related activities | 1.0 | 0.0 | 0.1 | 0.7 | 0.5 | 1.1 | 1.3 | |||||||||
| Research and development | 0.8 | 0.3 | 1.3 | 2.1 | 0.1 | 0.5 | 0.3 | |||||||||
| Renting of machinery and equipment | 0.7 | 0.9 | 0.8 | 0.5 | 1.1 | 1.9 | 0.6 | |||||||||
| Hotels and restaurants | 0.7 | 0.0 | 0.0 | 0.3 | 0.1 | 0.2 | 0.9 | |||||||||
| Education | 0.4 | 0.2 | 0.7 | 0.3 | 0.2 | 0.5 | 0.4 | |||||||||
| Public admin. and defence; compulsory social security | 0.3 | 0.1 | 0.2 | 0.2 | 0.3 | 0.5 | 0.4 | |||||||||
| Health and social work | 0.3 | 0.3 | 0.1 | 0.1 | 0.1 | 0.1 | 0.3 | |||||||||
| Private households with employed persons | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | |||||||||
Input as a Share of Gross Output
(in percent)
| All Economy | Agriculture, hunting, forestry and fishing | Mining and quarrying | Industry Construction | Electricity, gas, and water supply | Services | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| All inputs | 48.8 | 54.8 | 58.7 | 73.1 | 56.0 | 61.8 | 37.4 | |||||||||
| Agriculture, hunting, forestry and fishing | 1.7 | 18.0 | 0.0 | 4.3 | 0.9 | 0.3 | 0.2 | |||||||||
| Mining and quarrying | 1.4 | 0.2 | 4.1 | 4.0 | 0.9 | 11.7 | 0.0 | |||||||||
| Manufacturing industry | 16.5 | 20.4 | 32.0 | 40.0 | 21.6 | 8.7 | 6.5 | |||||||||
| Construction | 1.5 | 0.3 | 1.0 | 0.3 | 12.0 | 4.1 | 0.9 | |||||||||
| Electricity, gas, and water supply | 1.4 | 1.5 | 2.2 | 1.4 | 0.3 | 20.3 | 0.7 | |||||||||
| Services | 26.3 | 14.4 | 19.4 | 23.0 | 20.3 | 16.5 | 29.1 | |||||||||
| Other Business Activities | 7.8 | 1.7 | 2.2 | 6.5 | 7.8 | 4.5 | 8.7 | |||||||||
| Wholesale and retail trade; repairs | 3.6 | 6.1 | 7.1 | 6.4 | 4.7 | 1.0 | 2.3 | |||||||||
| Finance and insurance | 3.6 | 3.0 | 2.0 | 1.6 | 3.0 | 1.9 | 4.5 | |||||||||
| Transport and storage | 2.9 | 1.4 | 3.4 | 2.6 | 1.4 | 2.3 | 3.3 | |||||||||
| Real estate activities | 1.9 | 0.0 | 0.3 | 0.6 | 0.1 | 0.3 | 2.7 | |||||||||
| Post and telecommunications | 1.4 | 0.0 | 0.4 | 0.3 | 0.3 | 0.5 | 2.0 | |||||||||
| Other community, social and personal services | 1.1 | 0.1 | 0.7 | 0.6 | 0.5 | 1.2 | 1.4 | |||||||||
| Computer and related activities | 1.0 | 0.0 | 0.1 | 0.7 | 0.5 | 1.1 | 1.3 | |||||||||
| Research and development | 0.8 | 0.3 | 1.3 | 2.1 | 0.1 | 0.5 | 0.3 | |||||||||
| Renting of machinery and equipment | 0.7 | 0.9 | 0.8 | 0.5 | 1.1 | 1.9 | 0.6 | |||||||||
| Hotels and restaurants | 0.7 | 0.0 | 0.0 | 0.3 | 0.1 | 0.2 | 0.9 | |||||||||
| Education | 0.4 | 0.2 | 0.7 | 0.3 | 0.2 | 0.5 | 0.4 | |||||||||
| Public admin. and defence; compulsory social security | 0.3 | 0.1 | 0.2 | 0.2 | 0.3 | 0.5 | 0.4 | |||||||||
| Health and social work | 0.3 | 0.3 | 0.1 | 0.1 | 0.1 | 0.1 | 0.3 | |||||||||
| Private households with employed persons | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | |||||||||
Services Forward and Backward Linkages, 20091
Citation: IMF Staff Country Reports 2015, 179; 10.5089/9781513519579.002.A003
1/ Chart shows output rise in sector i due to unit increase in final demand of all other sectors (forward linkages) and output rises in all sectors duetoaunitincreaseinj’sfinaldemand(backwardlinkages).Source: Fernández Corugedo E. and E. Pérez Ruiz, 2014, “The EU Services Directive: Gains from further Liberalization,” IMF WP 14/113.Services Forward and Backward Linkages, 20091
Citation: IMF Staff Country Reports 2015, 179; 10.5089/9781513519579.002.A003
1/ Chart shows output rise in sector i due to unit increase in final demand of all other sectors (forward linkages) and output rises in all sectors duetoaunitincreaseinj’sfinaldemand(backwardlinkages).Source: Fernández Corugedo E. and E. Pérez Ruiz, 2014, “The EU Services Directive: Gains from further Liberalization,” IMF WP 14/113.Services Forward and Backward Linkages, 20091
Citation: IMF Staff Country Reports 2015, 179; 10.5089/9781513519579.002.A003
1/ Chart shows output rise in sector i due to unit increase in final demand of all other sectors (forward linkages) and output rises in all sectors duetoaunitincreaseinj’sfinaldemand(backwardlinkages).Source: Fernández Corugedo E. and E. Pérez Ruiz, 2014, “The EU Services Directive: Gains from further Liberalization,” IMF WP 14/113.3. Benefits of reform. The literature indicates that services sector reforms in France, in particular when combined with regulatory simplification and labor market reforms, would substantially benefit the entire economy, by boosting employment, investment productivity, and exports. A study by Bourlès et al. (2010) estimated that reducing regulation to the OECD frontiers could increase productivity by 3 percent after 5 years. IMF staff has estimated that a 1 percent productivity gain in regulated services could raise GDP by 0.8 percent after two years (Fernandez Corugedo and Pérez Ruiz, 2014).
4. Recent reform progress. There has been a noticeable acceleration of reforms in recent years:
Liberalization of regulated professions. A limited liberalization of regulated professions and health products retail took place in early 2014.
The Law on Growth and Activity (“Macron law”) is a significant step to accelerate product market reforms.2 It intends to (i) liberalize retail trade (notably by extending the opening hours for specific zones) and regulated legal professions; (ii) reduce rents received by toll road operators and liberalize intercity bus transport; (iii) adopt simplifying measures to induce greater housing supply. The reform of the retail trade and of the regulated legal professions also leads to an increase in the mandate of the Competition Authority.
Energy sector reform. Regulated tariffs will be phased out for businesses and local authorities. Regulated gas tariffs were reformed to better reflect supply costs in 2013 and, starting in 2016, the setting of regulated electricity tariffs will shift from the Ministers of Economy and Energy to the Energy Regulatory Commission. Moreover, a carbon tax was created in 2013 and hydroelectric operating concessions will be renewed through competitive procedures.
Regulatory simplification. A process aiming at simplifying administrative regulations and cutting red tape was launched in July 2013 (Modernisation de l’action publique). An independent body, the Businesses Simplification Council, co-chaired by a Member of Parliament and a business leader was created in 2014. Every six months, this Committee announces new simplification proposals.
5. Potential Impact. These product-market reforms have potentially a significant macroeconomic impact. The OECD (2014) estimates that recent structural reforms and those considered as of end-2014 (including the CICE and the tax cuts implemented over 2015–17 as announced in the Responsibility and Solidarity Pact) would jointly raise GDP growth by 0.3 percent per year over five years and 0.4 percent per year over 10 years. Over the long term, this estimated impact is equally divided between an employment impact and a productivity impact.
6. Remaining barriers. The Competition Authority has highlighted several areas, not covered by the recent reforms, where the benefit of increased competition would be substantial, notably (i) barriers to entry (including qualifications) and price formation for regulated professions not covered by the Macron law;3 (ii) anti-competitive practices and administrative barriers to entry in the retail sector that remain after recent reforms; (iii) transport, notably the railway sector. In addition, extending to SMEs the possibility to introduce a class action would help tackle cartel practices, which tend to be concentrated on intermediate goods. To reinforce the institutional setup and competition in services, it would be also important to ensure adequate resources for the Competition Authority and the effectiveness of the Businesses Simplification process.
Potential Product Market Reforms
(GDP impact after five years, in percent)
Potential Product Market Reforms
(GDP impact after five years, in percent)
| OECD | Authorities | |||
|---|---|---|---|---|
| I. Reforms implemented | ||||
| - Accelerate regulatory simplification | 0.2 | 0.2 | ||
| - Liberalize some regulated professions (legal and accounting) and the sale of some health products | 0.1 | 0.1 | ||
| II. Reforms announced | ||||
| Business environment | ||||
| - Streamline and cut business taxes (2015-2020) | 0.4 | 0.4 | ||
| - Reduce social and administrative threshold effects | 0.4 | … | ||
| - Modernize “droit des contrats” (contract laws) | … | … | ||
| Services sector and network industries | ||||
| - Liberalize services sector | ||||
| * Legal professions (Macron law) | 0.2 | 0.3 | ||
| * Coach transport (Macron law) | … | 0.1 | ||
| * Retail trade (shop hour) and strengthen the power of the Competition authority on commercial urban planning (Macron law) | … | < 0.1 | ||
| - Reform the railway sector | … | … | ||
| - Reform the energy sector | ||||
| * End regulated tariff concession on gas and electricity and hydroelectric infrastructure concessions | 0.2 | … | ||
| * Energy transition for green growth | … | 0.8 | ||
| Accelerate amortization with a view to boost investment | … | … | ||
| III. Other reforms to consider | ||||
| Competition and barriers to entry and exit notably for services | … | … | ||
| - Further liberalize regulated services (architects, accountants, pharmacists, …) | ||||
| - Strengthen and broaden the mandate of the Competition authority | ||||
| - Enhance the effectiveness of regulatory simplification through systematic selection criteria and well-defined implementation and follow-up procedures | ||||
| - Reform bankruptcy procedures to speed up reallocation of capital | ||||
| - Give SMEs the possibility to introduce class actions | ||||
| Reform innovation support schemes to promote private sector innovation | … | … | ||
Potential Product Market Reforms
(GDP impact after five years, in percent)
| OECD | Authorities | |||
|---|---|---|---|---|
| I. Reforms implemented | ||||
| - Accelerate regulatory simplification | 0.2 | 0.2 | ||
| - Liberalize some regulated professions (legal and accounting) and the sale of some health products | 0.1 | 0.1 | ||
| II. Reforms announced | ||||
| Business environment | ||||
| - Streamline and cut business taxes (2015-2020) | 0.4 | 0.4 | ||
| - Reduce social and administrative threshold effects | 0.4 | … | ||
| - Modernize “droit des contrats” (contract laws) | … | … | ||
| Services sector and network industries | ||||
| - Liberalize services sector | ||||
| * Legal professions (Macron law) | 0.2 | 0.3 | ||
| * Coach transport (Macron law) | … | 0.1 | ||
| * Retail trade (shop hour) and strengthen the power of the Competition authority on commercial urban planning (Macron law) | … | < 0.1 | ||
| - Reform the railway sector | … | … | ||
| - Reform the energy sector | ||||
| * End regulated tariff concession on gas and electricity and hydroelectric infrastructure concessions | 0.2 | … | ||
| * Energy transition for green growth | … | 0.8 | ||
| Accelerate amortization with a view to boost investment | … | … | ||
| III. Other reforms to consider | ||||
| Competition and barriers to entry and exit notably for services | … | … | ||
| - Further liberalize regulated services (architects, accountants, pharmacists, …) | ||||
| - Strengthen and broaden the mandate of the Competition authority | ||||
| - Enhance the effectiveness of regulatory simplification through systematic selection criteria and well-defined implementation and follow-up procedures | ||||
| - Reform bankruptcy procedures to speed up reallocation of capital | ||||
| - Give SMEs the possibility to introduce class actions | ||||
| Reform innovation support schemes to promote private sector innovation | … | … | ||
References
Bourlès, R., G. Cette, J. Lopez, J. Mairesse, and G. Nicoletti, 2010, “The Impact of Growth of Easing Regulation in Upstream Sector,” CESifo DICE Report, vol.8 (3). Pp. 8–12.
Enderlein, H. and J. Pisani-Ferry, 2014, Reforms. Investment and Growth: An agenda for France, Germany and Europe, Report to Sigmar Gabriel and Emmanuel Macron, 43 p.
Fernandez Corugedo, Emilio and Esther Pérez Ruiz, 2014, “The EU Services Directive: Gains from Further Liberalization,” Washington, D.C.: IMF, WP 14/113, 24 p.
Hallaert, J.J., 2013, Gains from Services Sector Reform? Washington, D.C.: IMF, Country Report 3/13, pp. 62–78.
Inspection Générale des Finances, 2013, Les professions réglementées, Rapport No. 2012 M 057 03, 3 volumes.
OECD, 2014, France - Les réformes structurelles: impact sur la croissance et options pour l’avenir, Paris: OECD, 23 p.
Premier Ministre, 2015, Programme National de Reforme 2015, France: Premier Ministre, 171 p.
Prepared by Jean-Jacques Hallaert (EUR).
The labor market reform component of the Macron Law is not discussed in this background note.
For details see Inspection Générale des Finances (2013).
