Hi again - This really is a a rock-and-a-hard-place situation, but I agree with the others that you should let the buyer go through the "item not received" procedure first, and see what the outcome is with eBay.
Personally, in these circumstances I would hold off giving a refund and take a few deep breaths. There is still a possibility the item will show up during the eBay claim process. My gut feeling is that, provided this buyer isn't scamming the system (and you) by falsely claiming he never received the item, the French postal service will eventually find him.
Just a suggestion (it may be too late) - did you email to the buyer a screen shot of the Xpresspost tracking info and a scan of the slip that you did up for the parcel? I once had a somewhat similar situation and it turned out the buyer just needed to actually show the tracking info to his P.O. for the item to be located - in other words, his name and address wasn't sufficient for them to find it. Since it got as far as France, their postal authorities should do a little legwork too.
Theft on the part of the postal service is another possibility of course - but you do have insurance on the parcel with Xpresspost, and presumably could make a claim for loss to Canada Post once the eBay procedure is closed. This would help to cover the cost of a refund to the buyer if it becomes necessary. Still, I'd try to wait it out for the time being.
I'll check back here in a week or so to see what transpires, as this is something I think we all face as sellers sooner or later. Keep us posted, and best of luck!
