On July 10, 2020, the U.S. Trade Representative (USTR) announced that it would impose a 25 percent additional duty on certain cosmetics, soaps and cleansing products, and handbags that are products of France, valued at $1.3 billion, due to the French Digital Services Tax (DST).  Nevertheless, USTR delayed the application of the duties for as long as 180 days, which means that at the earliest, the additional duties would go into effect January 6, 2020.  USTR stated that the tariffs could go into effect sooner than the 180-day suspension period, but if this change were to occur, USTR would issue a subsequent Federal Register Notice amending the effective date of implementation for the tariffs.

In July 2019, USTR opened an investigation directed at the Government of France under Section 301 of the Trade Act of 1974, because of France’s new DST, which imposed a 3 percent revenue tax on companies providing certain online services directed at French customers.  In December 2019, USTR found that the French DST was “unreasonable, discriminatory, and burdens U.S. commerce” and was expected to collect over $500 million in taxes for activities in 2021.  USTR accepted comments from interested parties in early 2020 on a proposed list of goods targeted for additional tariffs, which included French cheeses, wines, cosmetics, and handbags.  However prior to the imposition of additional duties, the U.S. and French governments were able to negotiate a truce that temporarily delayed the implementation of the DST until December 2020 and obviated the need for USTR to take immediate action.

USTR has stated that this action concerning tariffs on certain French goods is not intended to escalate trade tensions with France, but instead was necessitated by Section 304(a)(2)(B) of the Trade Act of 1974 requiring that USTR announce the action to be taken within 12 months of the initiation of the Section 301 investigation.  The 180-day delay of the imposition of the tariffs is intended to provide USTR and France additional time to continue discussions, which could lead to a satisfactory resolution of the DST matter.

USTR has stated that it will continue to monitor the effect of the trade action and may modify the list of affected goods necessary to ensure resolution of the matter with the Government of France.

This action comes on the heels of USTR announcing a similar action into digital service taxes involving India, the European Union and several other countries.  Over the last few years, various governments have enacted or considered taxes on revenues generated by digital services companies within the different jurisdictions.  Proponents of DSTs argue that the tax corrects corporate taxation to cover previously untaxed or undertaxed revenues.  Alternatively, the position of the Trump administration is that DSTs unfairly discriminate against “large, U.S.-based tech companies” such as Amazon and Google.

We will continue to monitor this situation closely. For more information on the Section 301 tariffs on French goods, please contact Robert Stang, Cortney Morgan, Nithya Nagarajan, Jeffrey Neeley, or a member of Husch Blackwell’s International Trade and Supply Chain team.