France vows retaliation over US sanctions threat

The dispute risks opening another front for the United States in a succession of trade disputes

Photo: EPA French Finance Minister Bruno Le Maire

France warned the United States of strong EU retaliation if it imposed tariffs on key French products ranging from sparkling wine to cheese to handbags, in an intensifying row over taxing digital giants that risks spiralling into a new trade war, coming just hours before Trump is due to meet his French counterpart Emmanuel Macron on the sidelines of the NATO summit in London.

The French parliament earlier this year infuriated the administration of President Donald Trump by passing a law taxing digital giants like Google, Apple, Facebook and Amazon for revenues earned inside the country. Talks to resolve the issue amicably have so far failed and on Monday the US threatened to impose tariffs of up to 100% on $2.4bn in French goods like sparkling wine, yoghurt and Roquefort cheese.

The full list of French products subject to potential duties includes cosmetics, porcelain, soap, handbags, butter, and several kinds of cheeses, including Roquefort, Edam and Gruyere. However, despite Trump's repeated threats to retaliate against French wines, only sparkling wine made the tariff list.

"We were in contact yesterday with the European Union to ensure that if there are new American tariffs there will be a European response, a strong response," French Economy and Finance Minister Bruno Le Maire told Radio Classique.

"This is not the sort of behaviour one expects from the United States with respect to one of its main allies, France, and to Europe in general," Le Maire said, while adding that he wanted to avoid a pattern of "sanctions and retaliation".

In the meantime, US Trade Representative Robert Lighthizer said in a statement hat the decision "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." His words came after an USTR report "concluded that France's Digital Services Tax (DST) discriminates against US companies, is inconsistent with prevailing principles of international tax policy, and is unusually burdensome for affected US companies".

The issue includes France, which backed by Britain, argues that the digital giants with at least $830m in annual global revenue on their digital activities must pay taxes on 3% of their revenues accrued in a country even if their physical headquarters is elsewhere. But Washington fears that US companies have been singled out. Lighthizer had thus warned that Washington was considering widening the investigation to look into similar taxes in Austria, Italy and Turkey.

Industry groups welcomed the US position on the matter, with the Information Technology and Innovation Foundation saying in a statement that France's tax is "narrowly and inappropriately targeted to raise revenue only from the largest companies in a small set of industries, many of them American".

Yet, so far the dispute risks opening another front for the United States in a succession of trade disputes. The US and China are already embroiled in a trade war and Trump said tariffs would be reinstated on Argentina and Brazil, accusing them of manipulating their currencies and hurting US farmers.

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