You could be excused if you thought that the U.S., China trade fight was the main trade policy uncertainty these days, especially after Bloomberg reported this week that President Donald Trump told the press that “he’s holding up” the phase one deal. “We can’t make a deal that’s like, even,” Trump said, adding that he said as much to China’s President Xi Jinping. “We have to make a deal where we do much better, because we have to catch up,” he said.
Still, the report said that the president thinks a China deal is in the “final throes.”
However uncertain the China deal may be, it is not the only trade concern now bubbling up. The New York Times said on Wednesday that the “90-day pause in the taxation of technology companies and other corners of the digital economy had ended.” The report raised questions of whether the president would revive threats against French wine and other products.
The Times focused on the potential for an escalating battle between the U.S. and France over taxing digital services. It noted that President Trump “gave no indication this week” whether he planned to return to his threats to impose new tariffs on imported wine and other French products as a result.
French leaders voted earlier this year to impose a new tax on economic activity that takes place online and “crafted it in such a way that it would largely hit large American tech companies like Amazon and Facebook.” In response, the administration opened an investigation into whether “the tax posed a threat to national security and should be met with American tariffs on French products.”
The President made that threat in July. Soon after, the countries reached a 90-day agreement that paused the American retaliation, while leaders from wealthy countries including France and the United States pursued negotiations toward an international agreement on digital taxation.
The French tax was an effort to capture revenue from activities of companies that sell or advertise online to its citizens — an effort being considered by a growing number of countries outside America, including Britain, Italy and Canada, the Times said.
The Organization for Economic Cooperation and Development is spearheading negotiations between the countries as it tries to avoid “an arms race of sorts” over digital sales revenue that crosses borders. Participants have set an ambitious goal to reach an agreement in principle sometime next year and key negotiators will meet next month in Paris to continue the process.
A final global agreement has the potential to expand to cover large automakers and other multinational companies — not just tech firms — the Times said.
Some tax experts predict that the administration will extend the truce period, perhaps unofficially, until at least January when the OECD is expected to update the status of the negotiations. Others say the administration is likely to hold off as long as negotiations remain fruitful.
“Absent some sort of intervention from the president, it seems very unlikely that the U.S. will act on its investigation before seeing whether there is a satisfactory agreement at the OECD this coming January, and if such an agreement is reached, whether the French keep their promise and repeal their digital services tax,” said Itai Grinberg, an international tax policy professor at Georgetown University Law Center.
The President has made it known that he is unhappy with the French tax even though he has separate concerns about the tech companies that are threatened by it.
“I’m not a fan of those companies, but if anybody is going to tax those companies, it should be the USA,” the President said. “It shouldn’t be France and the European Union, who have really taken advantage of the United States.”
David Kautter, the Treasury Department’s assistant secretary for tax policy, said last week that any countermeasures against France would be determined by the U.S. Trade Representative. He said that discussions between the United States and France had been “substantive” and “meaningful,” but it was not clear when the two countries would resolve their differences over the matter.
“The administration adamantly opposes unilateral digital services taxes that are focused primarily on U.S. companies,” Kautter said. “We think the best way to resolve this issue is through multilateral discussions in the OECD. We are actively engaged in those discussions.”
Still, Kautter cautioned that the target date for reaching a broader agreement was not until the end of next year and that there were many complicated matters to address in that time.
So, we will see. This potential fight appears likely to be one more hot button trade issue to add to the several that concern other products in other areas, and which have the potential to become increasingly important, and which producers should watch closely as they evolve, Washington Insider believes.
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