The Trump administration is threatening to impose tariffs of up to 100% on an estimated $2.4 billion worth of French products, claiming that a new digital services tax introduced by Paris earlier this year unfairly targets U.S. technology giants such as Google, Apple, Facebook and Amazon. The proposed retaliation could also include market restrictions on French services companies operating in the United States.
Under Section 301 of the Trade Act of 1974 (19 U.S.C. § 2411), the Office of the U.S. Trade Representative is permitted to take appropriate retaliatory action if it determines that a foreign act, policy or practice is unreasonable or discriminatory and that it burdens or restricts U.S. commerce.
The French Digital Services Tax (DST), which was signed into law July 24, applies a 3% impost on revenue that technology companies generate in France from such activities such as data collection, digital marketing and web advertising.
Based on the findings of an investigation launched this summer that were released this week, the USTR said that France’s DST is unfairly discriminatory because it applies largely to services where American companies are dominant but appears not to tax services where French companies are more successful. According to a statement issued by the USTR, “the French DST is inconsistent with prevailing tax principles on account of its retroactivity, its application to revenue rather than income, its extraterritorial application, and its purpose of penalizing particular U.S. technology companies.”
USTR Robert Lighthizer said the action he proposes taking “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 is proposing additional duties on a list of 63 tariff subheadings, which may be expanded in the final determination, with an aggregate trade value of $2.4 billion (roughly 5% of the $52 billion worth of goods imported from France in 2018). The specific duties applicable to the identified goods have not yet been indicated, but could be as high as 100%.
Among other products, the proposed tariff subheadings include yogurt, whey protein concentrates, butter, several varieties of cheese and cheese substitutes, sparkling wine, various beauty products, handbags, cast iron household items, and porcelain products.
An effective date for the tariffs has not yet been announced, but it could be any time after January 14, 2020, the due date for submitting post-hearing rebuttal comments.
In addition, USTR is considering imposing fees or restrictions on services from French providers in the United States and is also exploring whether to initiate Section 301 investigations into the digital services taxes of Austria, Italy, and Turkey.
USTR is seeking comments on the proposed tariffs and whether to take additional actions, including imposition of fees or restrictions on French service providers.
Specifically, USTR is seeking public comments on the level of harm to the U.S. economy caused by the DST, including DST payments owed by American companies, the annual growth rate of such payments, and other effects, such as compliance costs.
When providing comments on the inclusion or removal of a particular product, USTR has requested that stakeholder specifically address whether: Imposing increased duties on a particular product would be practicable or effective to obtain the elimination of France’s acts, policies, and practices; and whether imposing additional duties on a particular product would cause disproportionate economic harm to U.S. interests, including small-or medium-size businesses and consumers.
Those wishing to appear at the public hearing scheduled for January 7, 2020 in Washington must submit requests (along with a summary of testimony) no later than December 30, 2019. Written comments are due by January 6, 2020.
Note: It should not be automatically assumed that an exclusion process (such as those pertaining to the Section 301 tariffs on Chinese imports) will necessarily be put in place to exempt certain companies and/or products. USTR is not required to do so and in the past has elected not to institute an exclusion process for retaliatory actions. Accordingly, this could be the only opportunity for importers to provide input concerning any harm the proposed action may cause them and/or to request that goods be removed from the list of targeted products.
Need More Information?
Should you have any questions about how the proposed retaliatory action may impact your business, or if you require guidance in the preparation of a submission concerning the removal of products from the proposed list of tariff subheadings, don’t hesitate to contact us – our trade experts are here to help.