January 21, 2020
A truce over French digital tax and US tariff retaliation - really?
The news last night was that Emmanuel Macron and Donald Trump agreed a truce in their dispute over digital taxes. This will mean neither France nor the US will impose punitive tariffs this year. The threat lingers, though, as no-one has yet confirmed that the two men agreed to pull their mutual tax and tariff threats according to Bloomberg. French media reported the two sides gave themselves until tomorrow to avoid an escalation, so we are not there yet.
Last January Paris imposed a unilateral tax on large digital companies of up to 3% of their turnover in France. This was intendd to kick-start high-level negotiations at the OECD to come up with an international framework for a digital tax. Donald Trump complained the French tax would single out American companies like Amazon, Google, Facebook, Apple and Netflix. He threatened to retaliate with 100% duties tax on French products worth $3bn per day. At the same time, after blocking the OECD talks for several years, Washington relaunched them last year. But in the end this was only to make proposals in December which France rejected. France had already indicated it would abolish its own tax once an international agreement was found.
Bruno Le Maire is less sanguine than Macron about the prospects of success, and described the ongoing negotiations with the US as difficult yesterday. Avoiding sanctions is far from assured, he said. Sanctions could still be announced as soon as tomorrow, after the two countries' finance ministers are due to meet. Today it is up to the EU finance ministers to discuss progress of the OECD work on an international framework for a digital tax. The OECD is likely to work on this issue until the end of this year. There are many threads that need to come together for this negotiation to succeed and the tariff threats to be pulled off the table for good.
The digital tax is only one of the lingering disputes France, and in fact the EU, has with the US. A 25% tariff on French wine remains in place due to a separate trade dispute related to Airbus. The trade conflict between Europe and the US started in 2018 when the Trump administration invoked national-security considerations to impose tariffs on steel and aluminium imports from Europe. Trump's government threatened levies on European cars on the same grounds. A truce was hastily agreed, together with a pledge to cut industrial tariffs across the board. But the Trump administration has since refused to start the tariff-cutting negotiations unless Europe includes agriculture in them.