US suspends tariffs on French goods in digital tax dispute

[WASHINGTON] Washington has suspended a plan to impose new tariffs on US$1.3 billion in French products in a dispute over a digital services tax, the US Trade Representative (USTR) announced on Thursday.

The punitive levies were due to take effect Wednesday, but USTR held off citing ongoing investigations of similar measures "adopted or under consideration in 10 other jurisdictions."

The government of President Donald Trump in July 2020 announced the decision to impose 25 per cent tariffs on French handbags and cosmetics, among other items, but suspended collecting the duties until January 6.

That was in retaliation for the tax France approved in 2019 on tech firms like Facebook, Amazon, Apple and Google, which were accused of moving their profits offshore.

USTR Robert Lighthizer slammed the move saying it "unfairly targets US digital technology companies."

Paris suspended collection of the digital services tax through the end of 2020, as the sides have been trying to a negotiate a deal through the Organization for Economic Co-operation and Development (OECD).

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The aim is to find a common solution to address the policy dilemma of how to tax profits earned in one country by a company headquartered in another that offers more favourable tax treatment.

But the talks have not made much headway and were suspended due to the coronavirus pandemic. Meanwhile, more countries are considering following France's example.

USTR on Wednesday criticised similar digital services taxes on tech companies imposed by Italy, India and Turkey but imposed no tariffs.

The EU, which handles trade matters for the 27 member states, said that it took note of the decision and "stood ready to engage with the US to find a solution."

"More broadly, we are willing to work constructively with the US on finding a timely global solution to the fair taxation of the digital sector," tweeted EU executive vice president Valdis Dombrovskis.

French Trade Minister Franck Riester warned that "if the US reverses its decision, we will respond firmly."

AFP