Date of Submission: 06/01/12

Title of Assignment: Trade barriers and their effect on foreign direct investment in India and France.

CERTIFICATION OF AUTHORSHIP: I certify that I am the author of this paper and that any assistance I received in its preparation is fully acknowledged and disclosed in the paper. I have also cited any sources from which I used data, ideas or words, either quoted directly or paraphrased. I also certify that this paper was prepared by me specifically for this course.

While there are many differences in the political systems of India and France, there are also a number of interesting similarities. The French political system is special in two ways. Firstly, it is not a parliamentary system like the British one nor is it a separation of powers like in the USA, where the President must take account of congress. The French Fifth Republic is a semi-presidential system in which the president and prime minister are both active participants in the day-to-day administration of the state. When the president and prime minister come from opposing parties, the president is responsible for foreign policy and the prime minister is responsible for domestic policy. France is also different from most major democracies as it uses a two round single winner voting system, rather than the one round system, which is the system used in the United States and the United Kingdom. Like France, India also has both a prime minister and a president. India is a union of states. It is officially classified as a Sovereign, Socialist, Democratic Republic with a parliamentary system of government. The Republic is governed in terms of the Constitution of India. The Constitutional head of the executive of the union is the President. The Council of the Parliament of the Union consists of the President and two Houses known as the Council of States and the House of the People. The Council of Ministers is headed by the Prime Minister, whose responsibility is to aid and advise the President. The Council of Ministers is collectively responsible to the House of People. There is also a Governor for each state, who is appointed by the President. France’s trade is one of the largest in the world, they export and import various raw materials, automobiles and electronic products. They rank sixth in the world in terms of export volumes and fifth in terms of imports. One in four jobs in France also depends on international trade. France works hard to promote its interests with the European Commission in terms of international trade negotiations. As part of the European Union, France does of course have free trade with 26 other countries. India is also quite high on the list of the world’s highest importers, coming in at tenth. They are also the world’s nineteenth biggest exporter. So while they may not export and import as much as France, trade is still clearly a major part of their economy. Their tariffs do however, still remain high, leading some to see India as a protectionist economy. India has trade agreements with many of their neighbors as well as looking to sign new ones with the East Asian countries and the United States. Some of their important trade agreements include the India – Sri Lanka Free Trade Agreement and the Framework Agreement with the Association of Southeast Asian Nations (ASEAN), Thailand and Chile. One important organization in India is the Indian Institute of Foreign Trade, which was set up by the government of India to help professionalize the country’s foreign trade management and increase exports. While most English speaking countries use a system of common law, France uses a system of civil law, which is based on a Code of Law. The French judiciary is independent of the government. The basis of the French legal system is laid out in the ‘Code Civil’ or ‘Code Napoleon’, which means the Civil or Napoleonic Code. This laid down the rights and obligations of citizens and the laws of property, contract, inheritance etc. There also exists a ‘Code Penal’ which defines criminal law. Laws in France are proposed by the Government and must pass by the two houses of French Parliament, the National Assembly and the Senate. France’s dual legal system has one branch known as ‘Droit Public’ or Public Law for state and public bodies and one known as ‘Droit Privat’ for private individuals and bodies. The Indian Judiciary is partly a continuation of the British legal system established by the English in the mid 19th century. The constitution of India is the supreme legal document of the country. There are a number of different courts in India, each with varying powers depending on the tier and jurisdiction bestowed upon them. The Supreme Court of India is at the top, followed by the High Courts of respective states with district judges sitting in District Courts. Magistrates of Second Class and Civil Judges in the junior division are at the bottom. Courts hear both civil and criminal cases. Like France, the Indian judiciary is independent from the government. The official currency of France along with 16 other countries of the European Union is the euro. The euro is the second largest reserve currency as well as the second most traded currency in the world after the U.S dollar. The euro also has the highest combined value of banknotes and coins in circulation around the world, surpassing the United States dollar. Since late 2009, the euro has been suffering from the effects of the European sovereign debt crisis hence the creation of the European Financial Stability Facility as well as other reforms undertaken to stabilize the currency. The euro is managed and administered by the European Central Bank (ECB) and the Eurosystem, which is made up of the central banks of the eurozone countries. The ECB also has the sole authority to set monetary policy while the Eurosystem participates in the printing and distribution of notes and coins in all member states as well as the operation of the eurozone payment systems. India’s official currency is the rupee. Unlike France, it is independent from the rupee used by other countries such as Pakistan, Nepal and Sri Lanka. The issuance of the currency is controlled by the Reserve Bank of India. The Indian rupee is the fifteenth most traded currency in the world. There exists a controlled exchange rate between the Indian rupee and the U.S dollar. However, there are also a series of customs regulations which, restrict the import and export of rupees, which in turn affects their convertibility. The Reserve Bank of India also exercises a system of capital controls in addition to intervention, through active trading in currency markets. France and India both have very unique and rich cultures. France and particularly Paris has played an important role as a centre of high culture and arts for centuries. France has also played an essential role in cinema, fasion and cuisine around the world. As far as social forces, France is also a very diverse country with a large number of Jews, Muslims and Buddhists. This is something to be aware of when doing business in France. Other important things to be aware of are handshakes being used as a business greeting. Kissing on the cheek is usually reserved for when you know someone better. Gifts are appreciated, if giving wine, the higher quality the better, since the French appreciate their wines! French business behavior also emphasizes courtesy and formality. Manners are also very important, both in business and personal life. India has also made significant contributions to the world of dance, music, architecture and food. Religion also plays an important role in everyday life. Hinduism is the main religion, followed by a large number of Muslims, Christians, Sikhs, and Buddhists. One must be very respectful of another’s religion when doing business in India. As far as social norms are concerned, hierarchy plays a much more important role in India than France. It is also much more important to build relationships before starting business with someone in India as they are much more likely to treat you favorably this way. Punctuality is also not as stressed in India as it is in France. Some ethical issues to consider when doing business in both India and France include employment practices, human rights and corruption. In France, one can leave school and start working legally at age 16. There is a low employment rate in France due to their high minimum wage requirement, which prevents many young people from easily entering the job market. The legal working age and minimum wage requirements must be strictly adhered to when doing business in France. Another thing to pay close attention to is their shorter working hours. Corruption in France is still prevalent however, it is certainly not as visible as corruption in India. France’s corruption usually involves large scale political scandals such as Jacques Chirac, the French ex-President being given a two year suspended sentence for diverting public funds and abusing public trust. The government of India is making it compulsory to attend school till the age of 14. Technically the employment age is 18, with some exceptions for thing like limited hours farm-work, however, this is much less enforced than in somewhere like France, especially in the villages and rural areas. The Constitution of India outlines some basic human rights, however, like with the employment situation, it is often hard to enforce due to India’s size, diversity and status as a developing nation. American companies should not use child labor in India, besides the obvious ethical dilemma it poses, the Indian Government has been cracking down on foreign companies using child labor, for example GAP in 2007. As mentioned earlier, corruption in India is a major concern, it is said to be growing annually at over 100%. This of course poses the dilemma for foreign companies operating in India. As they may see the need to bribe officials in order to remain competitive however, they must remember that they can be prosecuted back home. American companies can be prosecuted due to the Foreign Corrupt Practices Act.