France vows retaliation after US threatens sanctions on key goods

PARIS (AFP) – France yesterday warned the United States (US) of strong European Union (EU) retaliation if it imposed tariffs on key French products ranging from cheese to handbags, in an intensifying row over taxing digital giants that risks spiralling into a new trade war.

The French Parliament earlier this year infuriated the administration of President Donald Trump by passing a law taxing digital giants like Google, Apple, Facebook and Amazon for revenues earned inside the country.

Talks to resolve the issue amicably have so far failed and on Monday the US threatened to impose tariffs of up to 100 per cent on USD2.4 billion in French goods like yoghurt and Roquefort cheese.

“We were in contact yesterday with the European Union to ensure that if there are new American tariffs there will be a European response, a strong response,” French Economy and Finance Minister Bruno Le Maire told Radio Classique.

“This is not the sort of behaviour one expects from the United States with respect to one of its main allies, France, and to Europe in general,” Le Maire said, while adding that he wanted to avoid a pattern of “sanctions and retaliation”.

France, backed by Britain, argues that the digital giants must pay taxes on revenues accrued in a country even if their physical headquarters is elsewhere. But Washington fears that US companies have been singled out.

The dispute risks opening another front for the US in a succession of trade disputes.

The US and China are already embroiled in a trade war and Trump said tariffs would be reinstated on Argentina and Brazil, accusing them of manipulating their currencies and hurting US farmers.

The decision “sends a clear signal that the United States will take action against digital tax regimes that discriminate or otherwise impose undue burdens on US companies,” US Trade Representative Robert Lighthizer said in a statement.

The full list of French products subject to potential duties includes cosmetics, porcelain, soap, handbags, butter, and several kinds of cheeses, including Roquefort, Edam and Gruyere.

Lighthizer had warned that Washington was considering widening the investigation to look into similar taxes in Austria, Italy
and Turkey.

The French tax, enacted earlier this year, imposes a three per cent levy on the revenues earned by technology firms in France, which often come from online advertising and other digital services. The tax affects companies with at least EUR750 million (USD830 million) in annual global revenue on their digital activities.

The French tax targets revenue instead of profits, which are often reported by tech giants in low-tax jurisdictions like Ireland in a practice that has enraged governments.

The USTR report “concluded that France’s Digital Services Tax (DST) discriminates against US companies, is inconsistent with prevailing principles of international tax policy, and is unusually burdensome for affected US companies”. The USTR has scheduled public hearings on the proposal to impose “duties of up to 100 per cent on certain French products” and the possibility of “imposing fees or restrictions on
French services”.

The last date to submit comments on the proposed actions is January 14, and “USTR expects to proceed expeditiously thereafter”.

Industry groups welcomed the report, with the Information Technology and Innovation Foundation saying in a statement that France’s tax is “narrowly and inappropriately targetted to raise revenue only from the largest companies in a small set of industries, many of them American”.