US slaps French goods with 25% tariff over digital tax, but delays effective date

A US probe concluded that the French digital services tax discriminates against US tech firms. PHOTO: AFP

WASHINGTON (REUTERS) -The Trump administration on Friday (July 10) announced additional duties of 25 per cent on French cosmetics, handbags and other imports valued at US$1.3 billion (S$1.8 billion) in response to France's digital services tax, but would hold off on implementing the move for up to 180 days.

The US Trade Representative's office said delaying the start of the tariffs would allow further time to resolve the issue, including through discussions in the Organisation for Economic Co-operation and Development (OECD).

The decision also reflected France's agreement to defer collection of its 3 per cent tax on digital services.

The US move follows a US Section 301 probe, which concluded the French tax discriminates against US tech firms such as Google, Facebook and Apple Inc.

France and other countries view digital service taxes as a way to raise revenue from the local operations of big tech companies which they say profit enormously from local markets while making only limited contributions to public coffers.

US Trade Representative Robert Lighthizer first disclosed on Thursday plans to impose new tariffs on French goods with deferred implementation. The US$1.3 billion worth of goods is part of a list first published by USTR in December.

The United States has initiated similar Section 301 investigations of digital services taxes adopted or being considered by 10 other countries, including Britain, India and Turkey, which could result in tariffs against their goods.

OECD talks aimed at developing a multilateral solution for taxing digital services have failed to produce any results, with negotiations complicated by the coronavirus pandemic.

Last month, US Treasury Secretary Steven Mnuchin caught European countries by surprise when he suggested a pause in the OECD talks given the lack of progress there.

A spokesman for the European Union told Reuters earlier that Brussels could propose its own solution if the OECD talks failed to produce an agreement. He urged Washington to resume the talks.

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