Mistral: a losing compromise for France?

Note kindly translated by Anne-Marie de Grazia

The affair of the two « Mistral »-class warships which Russia ordered from France and which France refused to deliver because of the conflict in Ukraine seems about to reach its epilogue. A communiqué from the Russian government, confirmed by a declaration of M. Le Drian, the French Minister of Defence, is announcing that the two countries have arrived at an agreement: France will reimburse Russia the sums paid, amounting to about 1.6 billion euros. This agreement is rather advantageous for France. Russia was in a position to demand penalties for breach of contract of a much higher amount. Yet, the Russian government decided against suing the French government and in favour of accepting a friendly agreement. This is, unquestionably, a gesture of good will on the part of Vladimir Putin. France is getting away cheaply. But the costs for France of this sorry affair risk to be far greater in reality[1].

The costs for France

The financial costs will not be limited to the sum which France will have to pay back to Russia. The two ships, the Vladivostok and the Sebastopol, were built according to Russian technical and military norms, as far as communications equipment as well as electrical and technical equipment were concerned. Which renders these ships unusable by any Western navy. In fact, if France wants to resell them to another country, the only two countries able to reuse them as built are China and India. In order to resell them to other countries, part of the equipment and of the means of communication will have to be remade, which should carry with it an additional expense of 400 to 500 million euros. However, it is eminently probable that no buyer will accept to pay for such a cost override, which would remain at the charge of France. Even should France find a buyer for these two ships, and if the buyer accepted to pay the price which Russia had agreed to, the losses for the shipyards and for the State would reach between 400 and 500 million euros.

There is also an industrial cost. The annulment of the sale jeopardizes a whole series of other contracts upon which French industry had set its hopes. This is also a blow to French shipyards. Whatever the Russians are saying, and they have – quite evidently – no interest in bruiting the matter about – important transfers of technology were agreed to by the French industrialists, be it in the area of diesel motors, of the very conception of the ships, or – more simply – in the industrial reorganisation of Russian shipyards. Indeed, one is forgetting that the latter will be building two units which will be the twins of those the sale of which has been annulled. These two units will be built at the shipyards of Saint-Petersburg and the latter might be able to construct, from 2020 on, a further development of the « Mistral » class which will be both larger and faster. The industrial cost will not be limited to this. The workload schedule of the French shipyards will be durably affected by this annulment. Between the transfer of know-how, the development of a competitive production capacity which could affect future contracts, the costs of Russian yards being lower than those of French yards, and the loss of jobs, the industrial costs of this annulment will certainly be high.

The symbolic cost: a loss in credibility

But the costs will not be limited to financial and industrial ones. There is a high symbolic cost to pay, too. France cannot be considered to be a trustworthy partner by a number of countries, particularly by the BRICS countries, which are interested in French equipment and which have considerable financial means. These countries, for political reasons, do not wish (or are not able to) buy military equipment from the United States, Great Britain, or even Germany. France was their logical partner. This is no longer true, with the annulment of the sale of these two ships to Russia.

In fact, we seem to have an example of this with the sale of Rafale to India. The French government expressed its satisfaction over the sale of 36 airplanes to India. Yet discussions concerned in reality the sale of 125 airplanes and the supply of spare parts for a period over at least 20 years. In fact, it appears that India has considered that it was taking a strategic risk in allying itself with the French industry over a long duration. This sale of 36 airplanes appears in truth like some consolation prize, rather than the fabulous contract which had been touted. In reality, the Rafale’ total sales are – up to now – far inferior to even these 126 airplanes which one was hoping to sell to India. The loss in credibility for the French industry resulting from the annulment of the sale of these two ships to Russia, though it cannot be evaluated immediately, could well be amounting to much more than the 1.16 billion, which have been reimbursed to Russia.

Was the annulment of sale pointless?

Which brings up more generally the problem not only of the why of the annulment of the sale of the Vladivostok and the Sebastopol but, beyond, of the degradation of economic relations between Russia and France. The pretext being the events in Ukraine. But France has been, together with Russia, a co-signatary of the Minsk agreements, which were to make possible, not only a cease-fire, but also a political agreement between Kiev and the Donbass insurgents. But the Kiev government has refused to apply the political leaf of this agreement. And it has been ascertained that the very high fragility of the cease-fire is largely due to the forces of the Kiev government carrying out regular bombings of civilian targets in the Donbass. Western governments have voiced their misgivings. The United States government, which is not a party to the Kiev agreements, has recognized that units deployed by the Kiev government, such as the Azov battalion, are composed of neo-Nazis. Isn’t it time to draw the lessons of all this and to cancel the economic and financial sanctions which have been implemented against Russia?

Even on Crimea, the whole Western narrative is crumbling[2]. Whatever Western government could say, it is a fact that the vast majority of population of Crimea is supporting the return of Crimea to Russia. May be the 2014 Referendum was not corresponding exactly to norm of jurisdictional legality. But it had a tremendous legitimacy. Sooner or later Western governments will be forced to acknowledge that. Hence, the whole logics on to which sanctions were thought and implemented are now collapsing.

The mechanism of sanctions and the weight of the United States

We know at present that the economic sanctions implemented by France and the countries of the European Union have turned against them. The collapse of trade with Russia has affected many companies. Moreover, the countersanctions implemented by the Russian government have had a very negative effect on French agriculture. In fact, the regime of sanctions appears as inefficient, as having considerable perverse effects in the domain of trade diversion, and it does not appear to be justified politically.

But it is clear that, even if France were to stop economic sanctions, it would remain dependent on American legislation concerning trade and, above all, means of financing. Indeed, the United States have endowed themselves with an arsenal of extraterritorial laws which allow them to sue any non-American company solely for using the Dollar in trade exchanges with a country « under sanctions » of the United States. Indeed, the field of application of the laws on sanctions has broadened itself considerably to include any company or individual in the world having a connection with the territory of the United States as tenuous as an email or a phone conversation, according to the ritual formulation « passed through, was stored on, and transmitted to servers located in the United States »[3]. This confers an extra-ordinary (in the primary meaning of outside of the ordinary) power to American authorities[4]. Insofar as the French government did not protest, and did not call upon the International Arbitration Court of The Hague in this type of conflicts, it has agreed to bend itself to American legislation. This creates a major problem for the independence of our country.

One may think that the agreement France and Russia have arrived at about the Vladivostok and the Sebastopol will allow to stabilize the situation of economic relations between the two countries. This is at least the hope of French industrials, who have been sorely affected by the sanctions. But for a real improvement to be possible, economic as well as financial sanctions would need to be lifted. And to do this, France would have to find back its independence in matters of foreign policy, regarding the United States as much as regarding the European Union. We are far from it, alas!

[1] http://www.parismatch.com/Actu/Politique/Les-premiers-chomeurs-de-l-affaire-Mistral-809991

[2] Vogt Jay, Western Narrative of Crimea a Pack of Lies Born of Failed Policy and Historical Ignorance, June 12, 2015, http://russia-insider.com/en/politics/crimea-work-progress/ri7794

[3] The Office of Foreign Assets Control (OFAC) : Represses actions of international trade effected by companies of all nationalities with countries which are under embargo from the American government: « The Office of Foreign Assets Control (OFAC) of the US Department of the Treasury administers and enforces economic and trade sanctions based on US foreign policy and national security goals against targeted foreign countries and regimes, terrorists, international narcotics traffickers, those engaged in activities related to the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of the United States. »

[4] Charles F. Smith & Brittany D. Parling, “‘American Imperialism’: A Practitioner’s Experience with Extraterritorial Enforcement of the FCPA,” UNIV. OF CHICAGO LEGAL FORUM 237, at 239 (2012); 15 U.S.C. §§78dd-1, 78dd-3.

Jacques Sapir

Ses travaux de chercheur se sont orientés dans trois dimensions, l’étude de l’économie russe et de la transition, l’analyse des crises financières et des recherches théoriques sur les institutions économiques et les interactions entre les comportements individuels. Il a poursuivi ses recherches à partir de 2000 sur les interactions entre les régimes de change, la structuration des systèmes financiers et les instabilités macroéconomiques. Depuis 2007 il s'est impliqué dans l’analyse de la crise financière actuelle, et en particulier dans la crise de la zone Euro.

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