Wednesday January 27, 2021
The central theses:
Threatened 25% tariffs on French luxury goods are suspended.
USTR continues to review tariffs in retaliation for taxes on US global technology companies.
Biden's new USTR will face immense pressure in the first few weeks of her term in office to negotiate the digital taxation issue.
In the final weeks of ex-President Trump's tenure, the US Trade Representative (USTR) has suspended its previous plans to impose tariffs on certain French luxury goods, as we have discussed here and here.
On June 26, 2020, the USTR released a notice that it is considering tariffs on exports such as olives, coffee, beer, gin, and trucks coming into the United States from France, Germany, Spain, and the United Kingdom. This move was part of a broader trade strategy by the Trump administration called "Carousel Retaliation," which seeks tariffs (1) across industries to create disruption and uncertainty in business and supply chains. These tariffs were originally proposed against France in response to its decision to impose 3% tax on certain revenues from technology companies operating in the European Union, a move the US felt was wrongly directed against American companies. (2)
Last year the USTR published several "Section 301" reports finding that foreign digital taxation laws in France, Italy, India and Turkey discriminated against US technology companies and placed undue burdens on US commerce. (3) In response, the USTR did so. The original intention was to impose 25% tariffs on various handbags and cosmetics. This would have targeted French goods valued at $ 1.3 billion. (4) These should come into force on January 6, 2021.
Instead, on January 7, 2021, the USTR announced that it would suspend the imposition of tariffs while it conducted further research into digital taxes levied by other countries on American companies, with the option of coordinating tariffs on French goods with future tariffs . On January 14, 2021, USTR found that digital taxes in Spain, Austria and Great Britain discriminate against US companies and leave the possibility of customs measures against these countries open. (5)
Nonetheless, the suspension came at a significant time in the change of power between the presidential administrations. President Biden's candidate to head the USTR, Katherine Tai, will face immense pressure in the first few weeks of her term to negotiate an agreement on digital taxation. It remains to be seen how the new government will address these trade tensions. However, the European Union has expressed its readiness to deal with the Biden government and swiftly resolve problems between the two parties. (6) While US tech companies are still divided, the Biden administration has signaled its desire for an international solution to minimum corporate tax rates. (7)
(6) https://www.reuters.com/article/usa-trade-eu/update-1-eu-trade-official-wants-swift-engagement-with-biden-on-aircraft-digital-taxes-wto -idUSL1N2JQ1MI
Copyright © 2020, Sheppard Mullin Richter and Hampton LLP.National Law Review, Volume XI, Number 27