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Trade Tensions Escalating Between U.S. and EU Amid Dueling Tariff Threats

Posted October 20, 2020

In the wake of the World Trade Organization’s October 13 decision over illegal subsidies provided by federal and state governments to Boeing Co., greenlighted the European Union to impose duties on $4 billion worth of U.S. imports, the two sides exchanged tariff threats that are cause for concern to importers from a variety of industries who could be hit by additional duties.  
US and EU in Conflict over Airbus-Boeing and Digital Tax
Last Friday, French Finance Minister Bruno Le Maire said he backed moving ahead with retaliating against the U.S. in order to bring a final resolution to the long-running aircraft dispute.

The previous day, President Donald Trump vowed that the U.S. will “strike much harder” if the EU goes ahead with planned tariffs on a wide range of U.S. goods including airplanes, helicopters, tractors, tobacco, rum, wine, and orange juice. “If they strike back, then we’ll strike much harder,” Trump told reporters. “They don’t want to do anything, I can tell you that.

The earliest date that the EU could trigger new tariffs on U.S. imports is October 26, when Brussels can request and the WTO can grant formal authorization to retaliate legally under international trade rules. Most experts predict the EU will hold off taking action until the upcoming election next month. EU trade officials have warned, however, that in the absence of “constructive” U.S. engagement following the elections, the bloc intends to move forward with the tariffs.

Boeing said it was “disappointed that Airbus and the EU continue to seek to impose tariffs on U.S. companies and their workers based on a tax provision that has been fully and verifiably repealed.” It also argued that WTO rules are only used to force compliance — which the plane maker insists is now the case — so any EU tariffs “would not be permissible.”

Following a 2019 WTO ruling in its favour over state support for Boeing’s rival Airbus, Washington last year began imposing a tariffs on $7.5 billion worth of EU goods including signature agricultural products like French wine, Spanish olives, Italian cheese, and Scottish whisky.

The White House has reportedly offered to settle the sixteen-year-old dispute once and for all, but only on the condition that Airbus repay government-backed loans for programs such as the wide-body A380 jet; something that EU officials contend is beyond its WTO commitments.

“What the U.S. seem to be suggesting is that there should be compliance obligations also for the past, and this is not in line with the principles which are followed by the WTO subsidy law which follows the principle of prospective compliance, so therefore we see no basis of this request,” said Executive Vice President of the European Commission Valdis Dombrovskis.   


Impending Retaliation to France’s Digital Service Tax

Meanwhile, The U.S. is planning to impose an additional 25% tariff on imports of soap, cosmetics, and handbags from France in response to that country’s digital services tax. However, application of this trade action has been suspended until January 6, 2021.

Like many countries, France has long been frustrated that “digital giants” like Google, Facebook and Amazon make huge profits from the European market while making minimal contributions to public finances owing to their limited physical presence. Accordingly, in July of 2019, France enacted a 3% levy on the revenue that companies earn from providing digital services to French users.

Though not directed specifically at American companies, when initiating a Section 301 investigation into the matter last year, U.S. Trade Representative Robert Lighthizer complained the “unreasonable” tax was also “discriminatory” towards U.S. firms.  Pushing back against the new law, the USTR said the government must “send 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.”

Negotiations between the Trump administration and the French government have been ongoing for the past year, but the two sides remain fundamentally at odds over the issue.   


Commission Poised to Move Ahead with EU-Level DST

This summer, the U.S. walked away from negotiations with the Organization for Economic Cooperation and Development for a new global tax framework for technology companies and threatened retaliatory measures if European governments – including France and the UK – went ahead with current proposals. At the time, U.S. Treasury secretary Steve Mnuchin warned the OECD talks had reached an “impasse” and said the U.S. would not agree to even an interim deal as it would affect leading U.S. digital companies disproportionately.

In remarks made lately, the European Commission has indicated fhat it stands ready to propose an EU-wide tax on digital companies, absent an international agreement being negotiated at the OECD. Mindful of the French situation, the new EU trade chief Dombrovskis said he wanted the bloc to move forward with a digital taxation proposal, “to avoid the fragmentation of the single market if different member states now start introducing different digital taxes.”


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