On July 10, 2020, The Office of the U.S. Trade Representative (USTR) announced the imposition of a 25 percent import duty on French products in response to France’s Digital Services Tax (DST). This action is the result of a Section 301 investigation initiated on July 10, 2019, after the French government passed a tax on revenues generated by certain companies involved in the digital services industry (see Trump and Trade Update of July 11, 2019). According to the USTR, France’s 3 percent DST covers transactions of U.S. companies with estimated revenues of approximately $15 billion in 2020, with expected collections of approximately $450 million in taxes from U.S. companies for activities during 2020 and over $500 million for activities during 2021. On December 6, 2019, based on the information obtained during the investigation, and as reflected in its December 2, 2019 investigation report, the USTR determined that France’s DST is unreasonable or discriminatory, burdens or restricts U.S. commerce and is actionable under Section 301 of the Trade Act of 1974. See Trump and Trade Update of December 3, 2019.
As a result, beginning on January 6, 2021, the USTR will take retaliatory action in the form of additional duties of 25 percent on items covered by 21 Harmonized Tariff Schedule (HTS) subheadings listed in Annex A to the July 10, 2020 announcement. The products are contained in HTS Chapters 33 (Essential oils and resinoids; perfumery, cosmetic or toilet preparations), 34 (Soap, organic surface-active agents, washing preparations, lubricating preparations, artificial waxes, prepared waxes, polishing or scouring preparations, candles and similar articles, modeling pastes, “dental waxes” and dental preparations with a basis of plaster), and 42 (Articles of leather; saddlery and harness; travel goods, handbags and similar containers; articles of animal gut (other than silkworm gut). The announcement provides an illustrative and informational product list in Annex B but notes that the formal language of Annex A governs any tariff treatment. Examples of affected French products include: lip and eye-make-up; certain soaps and skin wash products; and certain French handbags. Specified products will be subject upon entry for consumption to an additional ad valorem duty of 25 percent. The additional duties will apply in addition to all other applicable duties, fees, exactions and charges.
The USTR has stated that it will continue to monitor the effects of this trade action and progress with France toward resolution of this dispute. President Donald Trump and French President Emmanuel Macron agreed to a delay in the imposition of U.S. tariffs while France deferred collection of the tax. Notably, the USTR announced in early June 2020 that it was also initiating a Section 301 investigation into DST of European Union (EU) member countries and other nations (see Trump and Trade Update of June 4, 2020). That investigation is ongoing, and the USTR is accepting public comments on it until July 15, 2020. USTR Robert Lighthizer has indicated in recent press reports a desire to negotiate a settlement not only with France but also with the rest of the EU on this international tax structure.