Champagne, cheese and handbags: US slaps France over digital tax

The US said it may raise tariffs on French imports as France’s new digital services tax would hurt US tech companies.

French cheese
The US' list of French imports on which duties will be increased includes cheese, champagnes and luxury goods that were spared from an earlier 25 percent tariffs imposed over disputed aircraft subsidies [File: Kyle Grillot/Bloomberg]

The United States government on Monday said it may slap punitive duties of up to 100 percent on $2.4bn in imports of French Champagne, handbags, cheese and other products, after concluding that France‘s new digital services tax would harm US tech companies.

The US Trade Representative’s office said its “Section 301” investigation found that the French tax was “inconsistent with prevailing principles of international tax policy, and is unusually burdensome for affected US companies”, including Alphabet Inc’s Google, Facebook Inc, Apple Inc and Inc.

US Trade Representative Robert Lighthizer said the US government was also exploring whether to open similar investigations into the digital services taxes of Austria, Italy and Turkey.

“The USTR is focused on countering the growing protectionism of European Union member states, which unfairly targets US companies,” Lighthizer said. His statement made no mention of proposed digital taxes in Canada or the United Kingdom.

The trade agency said it would collect public comments on its proposed tariff list through January 14 and hold a public hearing on January 7. It did not specify an effective date for the proposed 100 percent duties.

The list targets some products that were spared from 25 percent tariffs imposed by the US over disputed aircraft subsidies, including sparkling wines, handbags and makeup preparations, which would hit French luxury goods giant LVMH and cosmetics maker L’Oreal hard.

Gruyere cheese, also spared from the USTR aircraft tariffs levied in October, featured prominently in the list of French products targeted for 100 percent duties, along with numerous other cheeses.

The findings won favour from US legislators and USu tech industry groups.

“The French digital services tax is unreasonable, protectionist and discriminatory,” Senators Charles Grassley and Ron Wyden, the top Republican and Democrat, respectively, on the Senate Finance Committee, said in a joint statement.

Spokespeople for the French embassy and the EU delegation in Washington could not immediately be reached for comment.

But prior to the release of the USTR’s report, a French official said that France would dispute the trade agency’s findings, repeating Paris’ contention that the digital tax is not aimed specifically at US tech firms.

“We will not give up on taxation” of digital firms, the official said.

France’s 3 percent levy applies to revenue from digital services earned by firms with more than 25 million euros ($27.86m) in French revenue and 750 million euros ($830m) worldwide.

Airbus subsidies disputed

The USTR also threatened on Monday to increase retaliatory tariffs on a wider range of European goods after the World Trade Organisation rejected EU claims that it was no longer subsidising aircraft maker Airbus.

A new compliance report from the Geneva trade watchdog found that the Airbus A380 and A350 jetliners continue to be subsidised as a result of past European government loans.

Lighthizer said the decision affirmed that European subsidies to Airbus continued to harm the US aerospace industry, and strong action was required to eliminate such market-distorting subsidies.

The US was in October awarded the right to impose tariffs on $7.5bn of annual EU imports in its case against Airbus. It went forward with partial tariffs on most Airbus jets and products from cheese to olives and single-malt whisky.

A decision on retaliation rights for the EU in a parallel case on aid for Boeing is due next year.

In Monday’s finding, a three-person panel rejected EU claims that a recent decision by Airbus to stop producing the slow-selling A380 meant the giant airliner could no longer be seen as a threat to Boeing, whose competing 747 is also out of fashion.

While the WTO no longer faulted Airbus for causing lost sales to Boeing with the A380, which is no longer marketed, it ruled that the super-jumbo jet would cause market-share damage to Boeing for as long as it is produced and delivered.

Airbus plans to shut production in mid-2021.

The WTO appeared to strengthen findings against the A350, saying it had cost sales and damaged Boeing’s market-share prospects – a process called impedance – in the busier twin-engined long-haul market where Boeing offers its 787 Dreamliner.

A previous WTO ruling had focused only on lost sales.

USTR, which imposed tariffs of 10 percent on large civil EU aircraft and 25 percent on selected farm and other products in October, said it would look at raising tariff rates and subjecting additional EU products to the tariffs. It gave no immediate details on the size of the possible increases, or which products could be added to the current list.

Source: Reuters