Trump suspends tariff action on French goods on digital tax

The U.S. will suspend a plan to hit $1.3 billion of French goods with tariffs in retaliation for the European country’s tax on the revenue of global tech companies—many of them American—de-escalating the transatlantic trade dispute just two weeks before President Donald Trump leaves office.

“The U.S. Trade Representative has decided to suspend the tariffs in light of the ongoing investigation of similar DSTs adopted or under consideration in 10 other jurisdictions,” it said in a statement Thursday, referring to digital services taxes. “A suspension of the tariff action in the France DST investigation will promote a coordinated response in all of the ongoing DST investigations.”

The 25% levy, which was due to go into effect at midnight on Wednesday, would have hit signature French goods such as handbags, soap and makeup.

Any imposition of duties on France or other EU countries would complicate President-elect Joe Biden’s effort to establish a relationship with one of America’s closest allies. The EU and U.S. are already trying to settle an aircraft dispute that’s seen the two sides hit $11.5 billion of each others’ exports with tariffs.

“We take note of the decision of the U.S. administration,” French Finance Minister Bruno Le Maire said. “We believe these sanctions are illegitimate under WTO law. Once again, we call for a comprehensive settlement of the trade disputes between the U.S. and Europe, in which everyone loses, especially in this time of crisis.”

The antagonism is just one symptom of a global dispute over how to tax tech companies such as Amazon.com Inc. and Facebook Inc. Nearly 140 countries have been negotiating for several years to overhaul the international system, but have repeatedly stumbled on issues including whether to ring-fence digital companies, how to allocate profits to different countries and how binding new rules should be.

The European Union is prepared to explore “all options” if the U.S. goes ahead with tariff measures, said Valdis Dombrovskis, the executive vice president for economy and trade commissioner for the bloc’s executive arm.

“More broadly, we are willing to work constructively with the U.S. on finding a timely global solution to the fair taxation of the digital sector,” he said on his Twitter account.

France implemented its tax on digital revenue in 2019 to put pressure on the talks to advance, but the U.S. said the unilateral move unfairly targeted American companies.

In January 2020, President Emmanuel Macron and U.S. counterpart Donald Trump agreed to a truce in their dispute to give time for the international negotiations to reach a global deal, but the talks broke down in October, and France resumed collecting the tax in mid-December.

Le Maire has in turn blamed the U.S. for the stalling the talks with demands—including a “safe-harbor” regime—that are unacceptable to others. The EU will begin work this year on a tax for the whole bloc should talks coordinated by the Organization for Economic Cooperation and Development fail.

©2021 Bloomberg L.P.