On the eve of U.S. President Donald Trump meeting his French counterpart Emmanuel Macron in London on the sidelines of the NATO alliance talks, the U.S. announced that it could levy up to 100% on $2.4 billion in French imports of into the country.
These announcement, which comes after an adverse conclusion by the office of the U.S. Trade Representative (USTR) following a trade practices investigation into France’s Digital Services Tax (DST), could including champagne, porcelain and some cheeses.
The ‘301’ trade probe against France was launched in July after Mr Macron signed the DST into law, aimed at taxing digital companies that did substantial business in France. The DST is a 3% tax on the turnover of digital companies with global turnover of at least EURO 750 million, EURO 25 million of which is from France. U.S. tech giants including Google, Amazon and Facebook had called for the tax to be scrapped.
The probe found that the “ French DST discriminates against U.S. digital companies such as Google, Apple, Facebook, and Amazon” as per a USTR statement which said the tax was inconsistent with prevailing tax principles due to its retroactivities, application to revenue rather than income and extraterritorial application. The statement said the tax was aimed at penalizing specific U.S. tech firms.
French Finance minister Bruno La Maire said that the EU would provide a “strong response” if the U.S. goes ahead with these tariffs.
The ‘301’ probe is a trade tool authorized by Section 301 of the U.S. Trade Act of 1974 which the U.S. uses to assert its rights under trade agreements if it decides American industries are facing “unfair” foreign trade practices. Having used the World Trade Organization’s (WTO) dispute settlement mechanism alone in recent times, the U.S., under the Trump administration, has brought the 301 back into use, launching a 2017 probe against China.
“USTR’s decision today sends a clear signal that the United States will take action against digital tax regimes that discriminate or otherwise impose undue burdens on U.S. companies,” USTR Robert Lighthizer said via a statement released on Monday.
The USTR was focusing on countering the “growing protectionism of EU member states” and may also open 301 investigations into the digital services tax against Turkey, Austria and Italy, Mr Lighthizer said.
The announcement comes two days after the U.S. said it would consider increasing tariffs on EU imports after a WTO panel ruled in the U.S.’s favour in a case involving European subsidies to aircraft manufacturer Airbus. The U.S. had already levied taxes on certain EU farm products and civil aircraft in October, on the back of a related WTO ruling.
The USTR announced a hearing on the proposed DST related action on January 7, before which the public has an opportunity to comment on it.
While this particular round of tariffs does not impact India directly, the USTR’s use of 301 probes is of relevance to the country. Deputy USTR Jeffry Gerrish had said in July that a 301 probe was part of the menu of options the U.S. was considering at the time with regard to India. Currently, New Delhi and Washington are in the middle of negotiating a limited trade deal.
