U.S. Is Still Considering French Wine Tariffs in G-7 Reversal

(Bloomberg) --

The U.S. is moving ahead with an investigation into a new French digital tax that could lead to import tariffs on French wine and other goods, despite hopes raised at August’s G-7 summit.

A senior Trump administration official confirmed that it’s continuing a Section 301 probe into the French measure and its impact on American digital champions including Amazon.com Inc., Facebook Inc., and Alphabet Inc.’s Google.

The probe is being conducted under the same statute used by the U.S. to levy tariffs on China as part of an escalating trade war between the world’s two largest economies, and could clear the way for targeting billions in French exports to the U.S.

French President Emmanuel Macron thought he’d avoided the threat of tariffs with an agreement at the Group of Seven meeting in Biarritz, France, saying at an Aug. 26 joint press conference with President Donald Trump that “we have reached a very good agreement.”

The French say their 3% levy on French-based revenue of digital companies, which took effect in July, is temporary until a global agreement is reached at the Organization for Economic Cooperation and Development on how to tax global digital companies that use complicated structures to shift earnings to low-tax jurisdictions. At the G-7 leaders agreed to address the issue of taxing digital companies in OECD negotiations.

The French tax angered Trump, who threatened retribution against the country’s wines in tweets and comments to reporters.

The French agreed at Biarritz that they’d refund any difference should the taxes decided at the OECD be lower than their levy, and French Finance Minister Bruno Le Maire said that avoiding Section 301 “was at the heart of the accord.”

But a senior U.S. administration official said on Friday that the U.S.’s Section 301 investigation of the French digital services tax continues.

The move to proceed with the probe comes after what people familiar with discussions said was a contentious visit to Washington by Le Maire on Sept. 3 to meet with Treasury Secretary Steven Mnuchin, U.S. Trade Representative Robert Lighthizer, and White House economic adviser Larry Kudlow.

The French delegation was confused that their counterparts seemed to have different answers with respect to next steps, and left feeling less optimistic that they could avoid any duties, the people said.

Negotiations with France also come as the Trump administration is preparing to dial up the trade pressure on the EU. 

Boeing and Airbus

The U.S. is expected to get the go-ahead from the World Trade Organization in the coming weeks to impose tariffs on billions of dollars in imports from the EU as part of a long-running dispute between aerospace competitors Airbus SE and Boeing Co. Trump also faces a decision before November over whether to go ahead with his threat to impose tariffs on cars imported to the U.S. from Europe as a national security threat.

Speaking at a conference in Cernobbio, Italy, on Saturday, Le Maire deflected questions about the link between the digital tax and tariffs. “Section 301 is not a problem if at the end there are no sanctions,” Le Maire said. “We are working very hard with my counterpart Steven Mnuchin.”

A French official downplayed the continuation of the Section 301 probe, saying it was simply a bureaucratic requirement that any investigation, once opened, must continue.

©2019 Bloomberg L.P.

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