EU, France ease protectionism row

The European Commission gave its blessing yesterday to France's aid plan for its ailing auto sector, easing tensions on the eve of an EU summit overshadowed by a row over economic protectionism.

The EU's competition commissioner declared herself satisfied with guarantees from Paris that the French bailout scheme is not protectionist against its fellow EU member states.

French Secretary of State for Industry Luc Chatel sent a letter to EU Competition Commissioner Neelie Kroes earlier yesterday stating that French authorities "have undertaken not to implement aid measures to the automotive sector that would contravene the principles of the internal market," the commission said in a statement.

In particular, France assured that state loan agreements with manufacturers "would not contain any condition regarding either the location of their activities or a preference for France-based suppliers."

"I am satisfied with the guarantees set out by the French authorities on the absence of protectionist elements in the plan for aid to the automotive sector," Kroes said.

President Nicolas Sarkozy this month announced plans to lend PSA Peugeot Citroen and Renault €3 billion each and other measures in exchange for a promise not to shut French plants or move to cheaper sites "in the Czech Republic or elsewhere".

The announcement was met by accusations of protectionism around Europe.

Czech Prime Minister Mirek Topolanek, whose country holds the EU's rotating presidency and is eastern Europe's biggest car producer, called the French "protectionist" measures "unacceptable".

Nine central and eastern European leaders will hold a pre-summit in Brussels today, seeking a common line to tackle their western partners on the issue of protectionism.

The European Commission has tried to keep the bloc in step, decrying national economic protectionism on the one hand while showing more tolerance to state bailout schemes on the other.

The car sector is a particularly high-stakes area.

One of the worst hit by the recession which has seen unemployment rise and consumer and business confidence fall, it is also one of Europe's biggest employers, with 12 million jobs at stake.

The commission warned earlier that the plan might break European Union laws against protectionism amid sniping from the Czech Republic and Slovakia as well as the German industry.