The United States thought it was entering a trade dust-up with France. It may end up in one with the whole European Union.
Speaking after a meeting with Frances finance minister, European Commissioner for Trade Phil Hogan said the blocs executive arm would back Paris in its dispute with Washington over a digital services tax that targets U.S. multinational companies.
“The European Commission will stand together with France and all of the member states who wish to have the sovereign right to impose digital taxation on companies in a fair way,” Hogan said during the joint news conference with Finance Minister Bruno Le Maire. “We will look at all possibilities if any tariffs and measures are imposed by the United States.”
What remains to be seen is what sort of measures the EU would be prepared to take if the United States does impose fresh tariffs.
Several EU countries oppose the idea of a digital tax, which France was the first to apply, raising questions about how much support France may garner at the EU level for concrete counter-measures.
Yet taking the World Trade Organization route would be unlikely to bring speedy resolution.
Meanwhile Washington, though locked in a potentially explosive dispute with Iran, is keeping up the pressure on Paris.
The U.S. has threatened to slap a 100 percent tariff on French goods following a U.S. government investigation which found the French tax discriminates against American technology companies.
The threat comes after France in July introduced a 3 percent digital-services tax for firms with more than €750 million of global revenue, including €25 million in France — a net that captures mainly U.S. firms, including Google and Facebook.
Several European countries are following suit, with Italy and Austria introducing their taxes on January 1 and the U.K. coming with one in April.
French Economy Minister Bruno Le Maire | Alain Jocard/AFP via Getty Images
Le Maire warned that a move against France was likely to be met with reaction from several EU states.
“If the U.S. hits France because of a national digital tax, they will have to start hitting Italy, Austria, the U.K. And we will enter a trade conflict between the U.S. and Europe. Is that what we want?” Le Maire said, adding that potential U.S. sanctions would be “unfriendly, inappropriate and illegitimate.”
Paris would be “ready to react” to tariffs by taking the case to World Trade Organization, the worlds main trade court, he said.
Faint promise at OECD
Yet taking the World Trade Organization route would be unlikely to bring speedy resolution.
The WTO has been on life support since early December, after the U.S. blocked the appointment of judges to the WTOs appellate body, the highest dispute-resolution body.
This means countries can still ask for WTO rulings on disputes, but the winner will be unable to enforce the ruling since an appeal from the losing party will slide into legal limbo. Trade disputes may never be resolved and escalate into tariff wars.
A global reform of tax rules could remove Frances incentive to impose a digital tax.
In a hint the EU is working to avoidRead More – Source
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