U.S. Proposes Up to 100% Additional Duties Due to French Digital Tax

The Situation: The Office of the United States Trade Representative ("USTR") determined that France's digital services tax ("DST") unreasonably burdens or restricts U.S. commerce, particularly U.S. technology companies.

The Result: As a result of the determination, on December 2, 2019, the USTR proposed additional duties of up to 100% on certain French goods including cheese, sparkling wine, cosmetics, soaps, handbags, and tableware.

Looking Ahead: Companies should consider participating in the public comment period as requests to appear at the public hearing, scheduled for January 7, 2020, are due on December 30, 2019, and written comments are due by January 6, 2020.

On July 24, 2019, French President Emmanuel Macron signed into law a DST, beginning January 1, 2019, which is a 3% tax on revenues generated by certain companies (i.e., companies that generate €750 million globally and €25 million in France) from certain digital services provided to France (i.e., targeted advertising services and digital interface services).

Upon the proposal of the DST on March 6, 2019, the USTR initiated an investigation of the DST pursuant to Section 301 of the Trade Act of 1974 ("Section 301"). Under Section 301, the USTR is authorized to take appropriate action to enforce U.S. rights or eliminate foreign restrictions, including by imposing duties on goods of the foreign country subject to the Section 301 investigation, concerning: (i) trade agreement violations; (ii) acts, policies, or practices that are unjustifiable (defined as those that are inconsistent with U.S. international legal rights) and burden or restrict U.S. commerce; and/or (iii) acts, policies, or practices that are unreasonable or discriminatory and burden or restrict U.S. commerce.

The USTR report on the findings of the Section 301 investigation, released on December 2, 2019, asserted that the French DST is unreasonable or discriminatory and burdens or restricts U.S. commerce, particularly U.S. digital companies. As a result, on December 2, 2019, the USTR proposed action in the form of imposing additional duties of "up to 100 percent" on a variety of French goods. The USTR is also considering whether to impose fees or restrictions on French services. According to public reports, the French government indicated that the European Union would retaliate if the United States pursues any of the threatened additional duties.

Preliminary Section 301 List of French Goods

The preliminary list of French goods potentially subject to up to 100% of additional duties consists of 63 tariff subheadings, with an estimated 2018 import trade value of approximately $2.4 billion. Specifically, the preliminary list includes French cheese, sparkling wine, cosmetics, soaps, handbags, and tableware. The USTR will prepare the final list of products subject to additional duties by pulling products from the preliminary list. 

Public Notice-and-Comment Process

There will be a public notice-and-comment process pursuant to which interested persons may provide comments with respect to the USTR's determination and proposed action, including:

  • The specific products to be subject to increased duties, including whether products listed in the preliminary list should be retained or removed, or whether products not currently on the list should be added;
  • The level of the increase, if any, in the rate of duty;
  • The level of the burden or restriction on the U.S. economy resulting from the DST;
  • The appropriate aggregate level of trade to be covered by additional duties; 
  • 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-sized businesses and consumers.

With regard to the action in the form of fees or restrictions on services of France, the USTR seeks comments on issues such as:

  • Which services would be covered by a fee or restriction;
  • If a fee is imposed, the rate (flat or percentage) of the fee, and the basis upon which any fee would be applied;
  • If a restriction is imposed, the form of such restriction; and
  • Whether imposing fees or restrictions on services of France would be practicable or effective to obtain the elimination of France's acts, policies, and practices.

The relevant dates are as follows:

  • December 30, 2019: Deadline for requests to appear at the hearing, which must include a summary of testimony.
  • January 6, 2020: Deadline for submitting written comments.
  • January 7, 2020: Public hearing at the U.S. International Trade Commission (500 E Street SW, Washington, D.C. 20436), beginning at 9:30 a.m. EST.
  • January 14, 2020: Deadline for post-hearing rebuttal comments.

We will continue to monitor developments associated with these potential tariffs, the comment process, and any eventual additional duties.

Three Key Takeaways

  1. Many companies will be affected by the additional tariffs if eventually imposed, including companies in the dairy, apparel, and cosmetics industries. Therefore, stakeholders should consider engaging in the notice-and-comment process.
  2. Stakeholders should monitor the docket for comments from other parties that could potentially impact their interests.
  3. The additional tariffs on French goods could be in place as soon as February or March 2020.
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