France Denies Protectionist Claims

French prime minister has rejected claims France is turning protectionist, arguing it is within European Union rules to link government handouts to protect local jobs and car plants.

BRUSSELS (AP) -- France insisted Thursday that it was well within European Union rules to hand out billions in government aid to protect local car plants and jobs.

French Prime Minister Francois Fillon fended off criticism from the EU's Czech presidency and other European nations that France's car bailout is giving its industry preferential treatment at the cost of other nations.

Fillon argued that without subsidies foreign plants of French automakers would be among the first to suffer.

He rejected protectionist criticism and said the international credentials of the sector are proven by factories spread from Slovakia to Britain and, indeed, the Czech Republic.

But he said the government was tied by the French taxpayer refusing to look beyond national borders.

"Public opinion would not agree to lend euro6 billion ($7.7 billion) to car companies which will then proceed to close down an assembly plant in the country itself," he said.

The EU is investigating a total French aid package of euro7.5 billion ($9.8 billion), fearing it might include competition-distorting measures at the expense of other EU nations.

Fillon told EU officials that striking down the subsidy package would affect workers well beyond France.

"The alternative is the extremely difficult situation which would face French car companies and their subsidiaries outside of France," he said, adding funds for foreign plants would soon dry up amid tough lending conditions with "exorbitant" rates.

European Commission President Jose Manuel Barroso remained unconvinced, refusing to pre-empt the EU investigation.

"We understand the French desire to help its car sector. But we have to ensure this should not have harmful collateral effect," he said.

German Chancellor Angela Merkel has said she wants to bring up the issue at a special EU summit of government leaders on March 1 to make sure that all car producers in Europe "have a level playing field."

The car industry has come to symbolize the economic collapse in Europe, with Renault SA announcing Thursday it would scrap its dividend, halt development of three models and further cut its payroll to survive the crisis. Renault received a direct loan of euro3 billion ($3.8 billion) as part of the bailout package.

The European car manufacturer's association said earlier this month that output fell by a fifth in the last quarter of 2008. Car makers employ some 2.2 million people directly in Europe. Another 10 million workers rely on the industry.

Carmakers say they generate almost euro400 billion ($500 million) in tax revenue for governments every year.

To keep the sector afloat Fillon proposed a pan-European project for the environment-friendly electric car. Such a plan would make a spree of national handouts easier to swallow since it falls in line with EU efforts to boost innovation and research.

EU leaders will hold high-level talks starting March 1 to see how they can pull their economies out of recession. A regular EU economic summit is scheduled for March 19-20 in Brussels and a special employment summit is planned for May.

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