France warns US against digital tax retaliation
France has warned the US that it will face retaliation from the EU if it tries to impose “highly disproportionate” trade tariffs in response to its digital tax on the likes of Google and Amazon.
In a letter to Robert Lighthizer, the US trade representative, on January 3, Bruno Le Maire, the French finance minister, said that “if the US were to decide to impose trade sanctions against the EU over the French Digital Services Tax, it would deeply and durably affect the transatlantic relationship at a time when we need to stand united”.
France is “in touch with the European Commission and other EU Member States on the subject” and they are “contemplating the various options to defend our trade rights in a proportionate and determined manner, as we have in the past,” the minister wrote.
If tariffs are imposed by the US then the EU is likely to respond in kind, say analysts. Mr Le Maire is due to meet the EU trade commissioner Phil Hogan on Tuesday morning in Paris, and will discuss the options on the table.
The US trade representative is scheduled to holding a public hearing on Tuesday about the proposed tariffs in retaliation for France’s digital services tax. US technology groups who have supported the administration’s hardline stance on the digital taxes are expected to square off against importers of French and other EU goods affected by the planned levies
If neither side backs down, the US-French row over digital taxation is likely to become a wider transatlantic trade war this year with Italy bringing in an equivalent tax and the UK, Austria and Turkey among others set to levy their own in the months ahead.
In December, after publishing a 93-page report on the French tax, Mr Lighthizer said that he was exploring retaliation against what he described as the “growing protectionism” of European countries that “unfairly targets US companies”.
Mr Le Maire said in his letter that he contested that conclusion, insisting that the current tax does not discriminate against US digital companies, is compliant with WTO rules and would be withdrawn once agreement on an international tax was agreed with the OECD.
He said any dispute should go through the WTO and asked that “US authorities suspend their proceedings and cease to contemplate unilateral tariffs that are neither warranted, nor proportionate, nor adequate to address this issue”.
However, despite French optimism over the OECD compromise and proposals by the body in October, talks have recently stalled with the US indicating it wanted to make the global rules optional rather than compulsory.
In a move that others see as destroying the Paris-based process, the US Treasury Secretary Steven Mnuchin walked back US support for the OECD plan, saying it had “serious concerns”.
The EU also said in December that it would be ready to revive its own plans for a region-wide levy if international negotiations failed.
France has been at the forefront of the digital taxation issue, and thus in the US’s sights as individual countries have increasingly moved to take unilateral action as efforts to build international consensus have foundered.
More than two dozen countries have already implemented or are considering their own ways of levying taxes as they grapple with how to take their share of transactions brokered by online platforms whose headquarters and offices often reside overseas.
Boris Johnson, the UK prime minister, said in December that he wanted to ensure US tech companies such as Google, Facebook and Amazon make a “fairer contribution”.
Mr Le Maire’s intervention comes ahead of the end of the consultation period for the US Congress over the proposed imposition of 100 per cent tariffs on up to $2.4bn of French goods, including champagne. A final decision is expected in the coming weeks, say people familiar with the matter.
“The trade sanctions that your office is proposing are highly disproportionate. Their impact on French companies and workers would by far exceed the impact of the Digital Services Tax on American companies,” wrote Mr Le Maire.
“I would also like to point out that US companies and workers will not benefit from increased tariffs, [and] the only alternative to French products in some cases is in fact Chinese rather than American,” he added.