French soda tax has Coke seeing red

WASHINGTON - The relationship between Georgia-based Coca-Cola Enterprises Inc. and the French government has fizzled in recent weeks after that nation proposed adding an extra tax on sugary soft drinks.

The French finance ministry said when it announced the proposal late last month that the move to levy a tax of 1 euro cent per can (about 1.4 U.S. cents) was "motivated by a public-health goal." One 12-ounce can of Coke has 39 grams of sugar, and the country's health ministry is concerned about expanding French waistlines and a spike in obesity rates.

Coca-Cola, which is based in Atlanta, cried foul and threatened to hold off on a planned $24 million investment and an anniversary party for its factory in Pennes-Mirabeau in southern France -- a position from which the company backed away last week. The company employs about 3,000 people in France.

But the company maintains that the tax would focus too narrowly on soda. It "unjustly targets the purchasing power of the French people and one category of beverages under the pretext of addressing public health concerns," said Hubert Patricot, president of the European Group for Coca-Cola Enterprises, said last week.

U.S. industry analysts say the proposed tax is an attempt to pay down the French government's debts. France's debt is nearly $4.7 trillion, and the country's government, like its counterparts across Europe and the United States, has been scrambling to locate places in the federal budget to trim fat and raise revenues.

The proposed tax, which is pending parliamentary debate, would take effect next year and is expected to generate $165 million a year.

"Countries are scrambling to do a lot of things to plug their deficits," said Ray Hill, associate professor of finance at Emory University in Atlanta. "Someone in France said, 'Soda isn't very French. Let's put a tax on them.' But someone didn't put two and two together and say, 'Hey, Coke is building a plant here.' "

This isn't the first time the relationship between Coca-Cola and France has caused a bit of indigestion.

In 2009, Philippe Folliot, a member of the French parliament who represents many Roquefort cheese producers, said the country should hit Coca-Cola with heavy import taxes in retaliation for increased U.S. tariffs on the blue-veined French cheese. The increased cheese tax set off a trade battle known as the "cheese wars."

The dispute's opening salvo came when the European Union banned imports of U.S. hormone-treated beef.

In 2005, France dubbed Danone, a French company that produces Dannon yogurt, a national treasure when Coke competitor PepsiCo flirted with a takeover. In the late '90s, a French court rebuffed Coca-Cola's attempt to buy Orangina, a maker of fruit-flavored drinks.

Some of the perceived tension has to do with heightened European antitrust concerns, Hill said.

"There are issues that France takes a little more seriously than some other countries," said Ali Dibadj, a New York-based analyst for Sanford C. Bernstein & Co, an investment research and asset-management company. "France has such a culinary focus. Food is part of the culture, so anything having to do with food they take a little bit more seriously."