France defends car aid against EU suspicions

(PARIS) - France defended itself on Friday against suspicions of trade protectionism by European Union authorities over its efforts to stop French car maker Renault shifting production abroad.

France's Europe minister Pierre Lellouche said he was "surprised" to learn from press reports that EU Competition Commissioner Neelie Kroes had questioned the legality of the terms of France's financial support for its auto sector.

Kroes said on Thursday she had told her office to contact French authorities to seek explanations after they pressured Renault not to shut down factories at home and move production to Turkey.

Lellouche responded in a statement on Friday that the government was entitled to approach Renault over its production plans and last year's state aid to the French auto sector was "totally compatible with (EU) community law."

He added: "Nothing in the agreed commitments forbids the state as a shareholder from discussing the company's strategy with Renault's managers and expressing its wish to have a vehicle intended for the European market made in the EU."

French government measures taken last year to support the auto sector in the economic downturn included generous loans to car makers on condition that they keep production and jobs in France.

Sarkozy has vaunted those measures as helping drag France out of recession last year and reacted with annoyance to reports that Renault may stop making its Clio model in France, producing it only at a factory in Bursa, Turkey.

"We're not giving all that money to support the auto sector so that all our factories can leave to go abroad," he told members of parliament at a meeting on Wednesday.

"I strongly contest the idea that these big companies, just because they are global, no longer have a nationality."

EU authorities are keen to clamp down on any government measures that they see as breaching the European Union's free trade and competition rules.

"I have consistently taken a tough line against knee-jerk protectionism," Kroes said on Thursday.

"Economic nationalism risks setting off a spiral of retaliation that would make the crisis 10 times worse and destroy any chance of recovery."

Lellouche said France was ready to respond to the commission concerns when officially contacted, and called on EU authorities to work to protect jobs in the bloc.