The U.S. has walked back on plans to levy an import tax on French luxury goods on the last minute. In a statement on Thursday, the Office of the U.S. Trade Representative announced that it “has determined to suspend the tariff action.” The 25 percent tax on $1.3 billion worth of French handbags and cosmetics was announced in July 2020 in response to the introduction of France’s Digital Services Tax, which imposes a tax on the digital earnings of companies that generate a certain level of global and French revenues, including tech giants like Facebook Inc., Google, Amazon, and Apple.
Slated to go into effect on January 6, the Office of the U.S. Trade Representative (“USTR”) stated on Thursday that it decided to put a stop to the planed tariffs in light of “the ongoing investigation of similar Digital Service Taxes (‘DST’) adopted or under consideration in ten other jurisdictions.” While those investigations “have significantly progressed,” according to the USTR, they “have not yet reached a determination on possible trade actions.”
In the interim, “A suspension of the tariff action in the France DST investigation will promote a coordinated response in all of the ongoing DST investigations.
As reported by the Wall Street Journal, the government agency said it is not “taking any specific actions for now but would continue to evaluate ‘all available options,’” noting that investigations into similar digital tax practices of the European Union, Austria, Brazil, Czech Republic, Indonesia, Spain and the United Kingdom are underway.
USTR Robert Lighthizer initially threatened to levy tariffs on as much as $2.4 billion worth of French goods imported into the U.S. in December 2019 in response to the introduction French digital tax law that July. With its 3 percent tax on digital services companies that generate at least 750 million euros ($845 million) in global revenue and have digital sales of 25 million euros ($28 million) in France, Lighthizer argued that the “unreasonable (and) discriminatory” French law “deliberately targets U.S. companies … and burdens U.S. commerce.” As a result, he asserted that the government must “send a clear signal that the United States will take action against digital tax regimes that discriminate or otherwise impose undue burdens on U.S. companies.”
As we noted late last year, the potential tariffs were expected to hit some brands harder than others. Paris-headquartered Louis Vuitton, for instance, was relatively well hedged in the event that the import taxes came into play given that in addition to its French and other European factories, it maintains a growing network of American operations, including a factory in Johnson County, Texas, which opened in 2019, and factories in San Dimas and Irwin, California. These manufacturing outposts have enabled the LVMH Moët Hennessy Louis Vuitton-owned brand to make “approximately half the bags” it has sold in the U.S. over the past 30 years on U.S. soil, the New York Times’ Vanessa Friedman reported in 2019. They would also allow Louis Vuitton to sidestep the bulk of the anticipated tariffs.
Meanwhile, rivals like conglomerate Kering (which owns Gucci, Balenciaga, Yves Saint Laurent, and Bottega Veneta, among other brands), and Birkin-maker Hermès, on the other hand, do not maintain as expansive manufacturing operations in the U.S., and thus, would have likely been in a more precarious position in connection with their import of luxury goods into the U.S. had the tariffs come into play. And the implications were expected to be “significant,” according to Sheppard Mullin lawyers Reid Whitten and Sarah Ben-Moussa. “While some consumers of these products are able to support the higher prices that may result from additional tariffs, that may not be enough to shield certain industry players from long term revenue losses.”