BY : Reuters

France, conceding defeat in a bid to sell advanced fighter jets to Morocco, has decided on a radical overhaul of the way it handles major arms export negotiations, French officials said on Wednesday.

The shake-up comes after talks to sell advanced Rafale fighter jets to the kingdom broke down amid reports of a fumble over the cost of the 2 billion euro ($2.85 billion) deal and its financing. Morocco will buy U.S. F-16s instead, industry sources say.

The shake-up was disclosed by officials accompanying French President Nicolas Sarkozy on a three-day trip to Morocco. The visit yielded rail, frigate and energy deals for France but not the sale of 18 Rafale fighters that Paris had wanted.

Sarkozy has decided that France's export system, especially for military hardware, is faulty and must be changed "from top to bottom and left to right," an official said.

In future a "war room" committee comprising senior officials from the presidency office, priome minister's office and other agencies will co-ordinate major arms sales negotiations with a brief to respond quickly to win contracts, the official said.

The changes are likely to be announced with the presentation of a new defence white paper in March, the official said.

France is the world's third largest arms exporter with annual sales of around 6 billion euros, according to Britain's International Institute of Strategic Studies.

The Rafale was developed and built at a cost of 28 billion euros over the 20-year life of the programme including the cost of supplying 294 jets to the French navy and air force.

U.S. RIVALS

But it has failed so far to find a foreign buyer for the Dassault-built Rafale after losing out to U.S. rivals in South Korea, Singapore and now Morocco.

France's Defence Minister Herve Morin has criticised the Rafale as over-sophisticated and too costly, but defence industry sources say the Moroccan negotiations went wrong when France's defence export agency DGA miscalculated the price.

The price for 18 Rafales crept up from 1.5 billion euros proposed by DGA to 1.8 billion euros sought by Dassault and finally 2.1 billion including Morocco's final after-sales, parts and support requirements, French defence sources said.

The loss of the Rafale contract with Morocco in its own diplomatic backyard is seen as a major embarrassment for France, which had come close to signing a deal for the jets in April.

Diplomats say Morocco's decision to buy cheaper Lockheed F-16s reflects an increasingly pragmatic foreign policy as it weighs U.S. ties against its former colonial master France.

Sarkozy appeared to acknowledge this in a speech on Thursday to French business leaders as he urged them to compete harder.

"We have no automatic rights here," he said. "We start on an equal footing with others and we will win because we are the best and we deserve to be the best," he said.

"We are no asking for special rights. We don't have a market share which is reserved for us."

He said Morocco's King Mohammed had praised the dynamism of Spanish and American companies in private talks between them.

The remarks by Sarkozy and his officials come after Morin on Tuesday attacked France's export system as too clumsy.

Asked whether it was this which had sunk the Rafale deal, he said: "It was a mixture of everything. It's a big programme."

Morocco had originally expressed interest in the Rafale in 2006 after regional rival Algeria bought around 60 Sukhoi and MiG fighter jets from Russia during a visit by President Vladimir Putin, according to defence industry sources.