USTR announces duties on $1.3B in French goods in tax dispute

The Trump administration announced Friday a 25 percent tariff on $1.3 billion worth of French handbags, cosmetics and soaps in retaliation for a digital services tax on U.S. internet giants, but said it would suspend imposing them for up to six months.
The United States believes the way the French tax is structured unfairly targets large U.S. internet companies like Facebook, Google and Amazon. However, other countries are increasingly determined to find a way to collect revenue from firms that earn billions of dollars in their markets.
A leading U.S. technology group welcomed the action, which was announced in a Federal Register notice.
“Today’s action sends a strong message that discriminatory taxes aimed at US companies are not a path to modernizing the global tax system,” Matt Schruers, president of the Computer and Communications Industry Association, said in a statement. “Changes to international tax rules must be negotiated in good faith through a consensus-based approach at the OECD that addresses the changes of the digitalized global economy.”
Key members of Congress also applauded the decision.
“Retaliatory tariffs aren’t ideal but the French government’s refusal to back down from its unilateral imposition of unfair and punitive taxes on U.S. companies leaves our government with no choice,” Senate Finance Chair Chuck Grassley (R-Iowa) and ranking member Ron Wyden (D-Ore.) said in a statement.
Background: U.S. Trade Representative Robert Lighthizer’s office concluded last year that France’s digital service tax was unreasonable, discriminatory and a burden on U.S. commerce. It also laid out a list of $2.4 billion worth of French goods — including Champagne, cheeses, handbags, soaps and fine dinnerware — that could be hit with retaliatory duties as high as 100 percent.
U.S. trade officials said the final retaliation figure announced Friday reflects the value of U.S. digital transactions covered by France’s 3 percent digital services tax, which is estimated to be in the range of $15 billion per year, and the amount of taxes that France is expected to collect from U.S. companies.
The final retaliatory list leaves off Champagne, cheese and fine dinnerware.
U.S. wine wholesalers and retailers, who have already been hurt by a 25 percent U.S. retaliatory duty on European wine in a separate dispute over European government support for aerospace giant Airbus, fought Lighthizer’s threat to include French Champagne in the retaliatory list for the digital services tax.
Industry groups estimated an additional 100 percent duty on French sparkling wine would increase the cost to importers by $718 million and cause the loss of more than 17,000 jobs throughout the distribution chain. A tariff of just 25 percent would boost costs by $179 million and jeopardize an estimated 6,000 jobs, the groups said.
USTR did not follow through on its tariff threat earlier because France agreed to suspend collection of its digital services tax while negotiations on a multilateral agreement continue at the Organization for Economic Cooperation and Development.
However, USTR faced a legal deadline to announce a final decision within one year of beginning its investigation on July 10, 2019. So the action announced today preserves the U.S.’s ability to impose tariffs if the OECD talks fail. It also delays adding to Trump's tariff load on the U.S. economy, which is already in a downturn because of the coronavirus pandemic.
The difficult OECD discussions hit another wall in June, when Treasury Secretary Steven Mnuchin told finance ministers from France, United Kingdom, Italy and Spain that negotiators had reached an impasse over how to determine various countries’ taxing rights. The four European nations had already passed or were on the verge of passing their own digital services taxes.
To some observers, that signaled the end of talks to figure out a universal solution for different countries to tax digital companies operating remotely within their borders and left only one path forward through the OECD — setting a global minimum tax on all kinds of multinational companies.
OECD leaders and others, including technology industry representatives, have nonetheless urged further talks to secure a global digital tax agreement to avoid fragmented taxes that vary from one country to the next.
Meanwhile, more countries have begun imposing or considering digital services taxes that the United States contends are unfairly aimed at its big internet companies.
"Now we have Europe wanting to do it and a bunch of other countries," Lighthizer said on Thursday during a discussion hosted by the Chatham House, a policy institute based in London.
What’s next: Last month, USTR launched new investigations targeting digital services taxes that have been adopted or are under consideration by the EU and nine countries: Austria, Brazil, Czech Republic, India, Indonesia, Italy, Spain, Turkey and the U.K.
An initial public comment period on those investigations closes on Wednesday. After that, USTR could publish proposed lists of which goods to hit with retaliatory duties.
Aaron Lorenzo and Sabrina Rodriguez contributed to this report.