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France says EU will retaliate if US imposes tariffs on French products

Paris

FRANCE'S government said the European Union would retaliate if the US follows through on a threat to hit about US$2.4 billion of French products with tariffs over a dispute about how large tech companies are taxed.

"It's not worthy of an ally, and it's not the behaviour we expect from the US towards one of its main allies, France, and more generally, Europe," French Finance Minister Bruno Le Maire said on Radio Classique on Tuesday. "If there were new US sanctions, the EU would be ready to retaliate."

US President Donald Trump said on Tuesday in a meeting with Nato leaders that it was "a minor dispute" with France which could be worked out.

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The office of the US Trade Representative (USTR) said on Monday that France's digital services tax - a levy that hits the revenues of large American tech companies including Google, Apple Inc., Facebook Inc. and Amazon.com Inc. - "discriminates against US companies".

The American tariffs would be imposed after a public comment period concludes in early 2020 and could target sparkling wine, cheeses, handbags and make-up.

USTR Robert Lighthizer said the agency is also exploring whether to open investigations into similar digital taxes by Austria, Italy and Turkey. The move comes hours after Mr Trump announced a barrage of other tariffs on steel and aluminium from Argentina and Brazil.

"USTR's decision today 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," Mr Lighthizer said in Monday's statement.

Monday's report concludes a more than four-month-long probe, known as a Section 301 investigation, into France's tax regime, which Mr Lighthizer in July said "unfairly targets American companies."

The same law was used last year to examine China's intellectual property practices that led to tariffs on more than US$360 billion in Chinese goods.

Mr Trump in August suggested tariffs of as much as 100 per cent on French wine and told aides that while he's not generally empathetic with US tech companies, he believes it should be the US - not any other country - that taxes them, people familiar with internal deliberations said.

The US move is a setback for efforts to stop a conflict over digital tax from intensifying. Mr Trump and French president Emmanuel Macron agreed in August to try to find a compromise, but a 90-day deadline for talks expired last week without a resolution.

The US tariffs and the French tax are likely to be a priority during a meeting between Mr Trump and Mr Macron on Tuesday, on the sidelines of a NATO conference in London.

"The French national tax on digital activities just aims to re-establish fiscal fairness," Mr Le Maire said. "It targets American companies, it also targets Chinese and European companies, so it is not discriminatory."

Mr Macron argues that moving ahead with a tax on tech companies is necessary because the structure of the global economy has shifted to one based on data, rendering current systems archaic.

His government is trying to use France's national tax as a bargaining chip, saying it would withdraw it if there is agreement on an international solution - in talks under the stewardship of the Organization for Economic Cooperation and Development (OECD).

There were signs of progress in recent weeks when the OECD proposed a "unified approach" to merge proposals that differed over whether to single out digital companies or have a broader approach. Mr Le Maire said that France agrees with the OECD plan but that the US has backed off from supporting an OECD compromise. "They've said they aren't sure they want a solution at the OECD," he said on radio station France Inter. "We will never abandon our will to tax digital giants in a fair way."

France's tax, retroactive to January, affects companies with at least 750 million euros ($830 million) in global revenue and digital sales of 25 million euros in France. While most of the roughly 30 businesses affected are American, the list also includes Chinese, German, British and French companies.

The French government says it's urgent to overhaul tax rules because the average tax rate for digital companies in the European Union is only 9.5 per cent, compared with 23.2 per cent for other companies. BLOOMBERG