On 2 December 2019 the US Trade Representative (USTR) announced that it has determined that France's digital services tax (DST) is unreasonable or discriminatory and burdens or restricts US commerce, and that it is proposing additional ad valorem duties of up to 100% on products from France under Section 301 of the Trade Act 1974 (19 USC § 2411). Potential products subject to the additional duties are provided in a preliminary list of 63 Harmonised Tariff Schedule of the United States subheadings with an estimated import trade value of approximately $2.4 billion.
Parties seeking changes to the proposed list of tariff subheadings or lower duties should take advantage of the comment period.
Under Section 301 of the Trade Act, the USTR can take retaliatory action if it determines that an act, policy or practice is unreasonable or discriminatory and burdens or restricts US commerce. This Section 301 action against France is aimed at countering the 3% DST signed into law in Summer 2019. The DST is on revenue from some online activities, such as data collection and web advertising. The USTR found that the tax targeted large US multinationals.
The USTR initiated an investigation into the French DST in July 2019. On 2 December 2019 it issued a report on this investigation and found that the French DST is actionable because it:
- discriminates against US companies;
- is inconsistent with prevailing principles of international tax policy; and
- is unusually burdensome for affected US companies.
Specifically, the USTR's investigation found that the French DST discriminates against US digital companies.
This Section 301 finding is specific to France and is separate from the Section 301 determination that the USTR made regarding China's acts, policies and practices relating to technology transfer, intellectual property and innovation. Product exclusions obtained for the duties imposed under the Chinese Section 301 action will not apply to these duties.
The USTR published a list of 63 tariff subheadings on which it is proposing additional duties, but additional tariff subheadings may be added in the final determination. The USTR did not list the proposed duty on each proposed tariff subheading but did state that the duties could be up to 100%.
Among other products, the proposed tariff subheadings include yoghurt, whey protein concentrates, butter, several varieties of cheese and cheese substitutes, sparkling wine, various beauty products, handbags and porcelain products.
In addition, the USTR is considering imposing fees or restrictions on services from French providers in the United States. According to the press release, the USTR is also exploring whether to open Section 301 investigations into the digital services taxes of Austria, Italy and Turkey. British Prime Minister Boris Johnson indicated that Britain is also considering implementing a DST.
The USTR did not announce the effective date for the tariffs, but it could be any time after 14 January 2020, the due date for submitting post-hearing rebuttal comments.
Below are the deadlines for the French DST Section 301 determination:
- 30 December 2019: due date for submission of a request to appear at the public hearing and a summary of testimony.
- 6 January 2020: due date for written comments.
- 7 January 2020: the Section 301 Committee will convene a public hearing in the main hearing room of the US International Trade Commission (500 E Street SW, Washington DC 20436) at 9:30am.
- 14 January 2020: due date for submission of post-hearing rebuttal comments.
The USTR has requested comments on whether the action is appropriate and, if so, the appropriate action to be taken. It is seeking comments on the proposed tariffs and whether to take additional actions, including imposing fees or restrictions on services of France.
Specifically, the USTR is seeking public comments on the level of harm to the US economy caused by the DST, including DST payments owed by US companies, the annual growth rate of such payments and other effects, such as compliance costs.
For the proposed additional duties, the USTR has invited comments regarding the following topics:
- the specific products to be subject to increased duties, including whether products listed in the proposed 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 US economy resulting from the DST; and
- the appropriate aggregate level of trade to be covered by additional duties;
When providing comments on the inclusion or removal of a particular product, the USTR requested that commenters specifically address 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
- additional duties on a particular product would cause disproportionate economic harm to US interests, including small or medium-sized businesses and consumers.
Parties should also consider providing comments on whether the same quality of products can be sourced from other countries, including the United States.
For potential actions in the form of fees or restrictions on services of France, the USTR is seeking comments on:
- which services would be covered by a fee or restrictions;
- if a fee is imposed, the rate (flat or percentage) of the fee and the basis on which any fee would be applied;
- if a restriction is imposed, the form of such a 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.
It is likely that the USTR is seeking to affect $2.4 billion in trade with France as a result of this action; therefore, when submitting comments on the removal of products from the proposed list of tariff subheadings, parties should analyse how their proposed exclusion affects this goal.
Although the USTR instituted an exclusion process of the Chinese Section 301 duties after they were implemented, it is not required to do so and has previously elected not to institute an exclusion process for retaliatory actions.
Whether a party should submit comments is largely dependent on the level of impact of the duties. However, this may be the only opportunity to submit comments. The request to appear at a hearing is 30 December 2019 and comments are due on 6 January 2020.
For further information on this topic please contact Kay C Georgi, David R Hamill, Teresa Polino or David Salkeld at Arent Fox LLP by telephone (+1 202 857 6000) or email ([email protected], [email protected], [email protected] or [email protected]). The Arent Fox LLP website can be accessed at www.arentfox.com.