A trade dispute between the Trump administration and France intensified on both sides of the Atlantic on Tuesday, with U.S. tech giants backing tariffs to retaliate against a new French digital services tax and a top EU official warning the bloc would stand behind its member country.
The dustup could complicate efforts to strike an international agreement on taxation of the tech sector and other multinational businesses. And it could suck in other countries that have imposed similar taxes or are contemplating doing so.
Amazon, Google and Facebook endorsed the administrations plan to slap tariffs on $2.4 billion worth of French cheese, Champagne, handbags and other goods if a negotiated solution cant be reached over the tax, which applies to such things as targeted advertising and providing platforms to connect buyers and sellers.
The Computer and Communications Industry Association, which represents the three internet giants, urged “USTR to use remedial tools at its disposal to deter France and to send a strong message to other countries who are finalizing or have proposed a similar national digital tax,” as Rachael Stelly, policy counsel at the CCIA, testified before a Trump administration hearing chaired by the Office of the U.S. Trade Representative.
The head of the office, Robert Lighthizer, has threatened to open additional investigations against other countries that adopt a digital services tax.
“We gave ourselves 15 days, until our next meeting in Davos in end-January. We want to try all options to reach an agreement at the OECD in the next 15 days” — French Economy Minister Bruno Le Maire
The United States is home to many of the worlds biggest tech companies, which have operations all over the world. Countries such as France want to be able to collect tax revenue on those business activities within their borders, but there is no international consensus yet on how to do that.
Talks on how to tax digital services are now underway at the Organization for Economic Cooperation and Development, a club of developed nations based in Paris. However, expectations of reaching a deal soon are dim, despite a pledge by senior U.S. and French officials on Tuesday to step up discussions ahead of the World Economic Forum meeting in Davos, Switzerland, later this month.
French Economy Minister Bruno Le Maire told reporters in Paris that he and U.S. Treasury Secretary Steven Mnuchin had agreed to double their “efforts in the coming days to try and reach a compromise on digital taxation at the OECD.”
“We gave ourselves 15 days, until our next meeting in Davos in end-January. We want to try all options to reach an agreement at the OECD in the next 15 days,” Le Maire said.
US Trade Representative Robert Lighthizer and European Commissioner for Trade Phil Hogan are scheduled to meet in Washington next week to discuss digital taxes and other trade irritants | Mark Wilson/Getty Images
At the same time, European Commissioner for Trade Phil Hogan said the EUs executive arm would back Paris in its dispute with Washington.
“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 a joint news conference with Le Maire. “We will look at all possibilities if any tariffs and measures are imposed by the United States.”
Hogan is scheduled to meet with Lighthizer in Washington next week to discuss digital taxes and other trade irritants.
Stellys support for the tariffs clashed with testimony at the USTR hearing from other groups, whose businesses would be severely harmed by duties on the French goods.
Those included approximately two dozen wine wholesalers and retailers who have already been hurt by Trumps retaliatory duties on wine in a separate dispute over European government support for aerospace giant Airbus. Trump has imposed a 25 percent duty on European wine in that trade spat, but Lighthizer has proposed increasing it to 100 percent.
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 coalition of ten wine and alcohol groups said in a letter to USTR. A tariff of just 25 percent would boost costs by $179 million and jeopardize an estimated 6,000 jobs, the groups said.
The Trump administration argues the way the tax is structured unfairly targets dominant American internet companies, while sparing French firms.
“We strongly urge the U.S. and France to reach a negotiated settlement in this dispute and avoid the implementation of new tariffs,” said Barkley Stuart, executive director of Southern Glazers Wine and Spirits, as well as the immediate past chairman of the Wine and Spirits Wholesalers of America.
Mary Taylor, the 42-year-old head of a small business that specializes in importing and selling European wines, said the threatened tariffs on French champagne risked destroying her company, coming on top of the existing wine duties.
“We find ourselves suddenly under water. Should tariffs reach 100 percent as currently proposed, I will surely have to give up my young business and find another line of work or depend on welfare,” Taylor said. “My question to you is: how can you just gut my family business?”
Stelly said CCIA was sensitive to the negative impact that Trumps proposed duties could have on companies outside the tech sector, but she argued a strong response was needed to Frances tax because of the unfair burden it imposes on American internet companies.
Tariffs “should only be used in limited circumstances, in a targeted manner and where there is a clear strategy in place designed to change the behavior of a trading partner,” Stelly said. “USTRs proposed action in this particular investigation appears to meet that standard.”
The French tax is effectively a unilateral tariff on imports of U.S. technology, she said.
French Economy Minister Bruno Le Maire and European Union commissioner for Trade Phil Hogan | Eric Piermont/AFP via Getty Images
The levy imposes a 3 percent digital services tax on firms with more 750 million euros in global revenue, and 25 million euros in revenue in France.
The Trump administration argues the way the tax is structured unfairly targets dominant American internet companies, while sparing French firms. USTR outlined its findings in a report released in early December, and also announced plans to impose 100 percent retaliatory duties on as much as $2.4 billionRead More – Source