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New Trade War: US Punishes France For Its Independent Policy

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New Trade War: US Punishes France For Its Independent Policy

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The coronavirus epidemic has temporarily eased tensions between the US and its trading partners. However, as the world’s economies begin to gradually return to normal functioning, the administration of Donald Trump has again resumed its economic attacks. They target not only the enemies of the United States but also their partners, and the last one concerned France.

On July 11, the United States announced 25 percent customs duties (totalling $ 1.3 billion dollars) on goods from France. This decision of the White House is caused by the adoption in France of a tax on the services of major digital companies, such as Amazon, Apple, Facebook and Google. The tax was named GAFA after the capital letters of the digital giants. The issue of digital tax has become the subject of a bitter disagreement between the US and France.

France and the United States have been opposing each other on the issue of GAFA tax for quite a long time.

A year ago, on July 11, 2019, France became the first country to adopt a tax on digital giants and other multinational corporations. The law imposes a tax on large technology companies that have a global turnover of 750 million euros and a turnover of 25 million euros in France. The French GAFA tax imposes digital giants at a rate of 3% of revenue in France, including targeted advertising on the Internet, selling data for advertising purposes, and connecting users through platforms.

New Trade War: US Punishes France For Its Independent Policy

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Taxation of digital giants and multinational corporations is the main issue on the way to adapt the global tax system to the process of digitalization of economies that has been taking place over the past decades.

“There is an opinion all over the world that the international tax system agreed within the framework of the League of Nations about 100 years ago no longer works. “- said the IMF’s Director of tax affairs, Vitor Gaspar.

In response to the law passed in France, in December 2019, the United States threatened to impose additional customs duties of up to 100 % on a wide range of imported French goods, including wines and cheeses, totaling 2.4 billion euros. (about 2.15 billion euros).

New Trade War: US Punishes France For Its Independent Policy

Bruno le Maire, Source: AFP

Meeting pressure from Washington, Paris eventually backed down in January 2020, delaying the collection of the GAFA tax until December 2020.

The US threats were not implemented. Shortly in Davos, a compromise was reached between the French Minister of the Economy and Finance, Bruno Le Maire, and the US Secretary of the Treasury, Steven Mnuchin. It was supposed to help reach a final agreement on taxation of digital companies within the framework of the OECD. The negotiations seemed to be going in a positive direction. The parties reached an agreement, which established a framework of the development of digital taxation by the OECD.

“This working base should allow us to technically start working next week to look at different tax options for digital activities, so we have a few months to come to a deal,” explained Bruno Le Maire.

Since then, the situation has critically deteriorated. The US presidential election, which will be held in November 2020, is approaching. Perhaps the differences could have been resolved earlier, but since negotiations slowed down due to the coronavirus epidemic, it is no more profitable for Donald Trump to allow such concessions at the moment. As a result, in mid-June, the White House announced a “break” in the negotiations, under the pretext that “governments around the world are focused on responding to the Covid-19 pandemic and safe opening of their economies .”

Hereafter, the US has announced 25 percent customs duties on French cosmetics and bags. This decision will come into force on January 6, 2021, similarly to the French GAFA law. The postponement gives more time to solve this problem within the framework of the OECD.

The European reaction was immediate: “this is a provocation,” replied the French Economy Minister. “We were inches away from an agreement to tax digital giants, who are probably the only ones in the world to have received huge benefits from the coronavirus.”

He added that Washington’s attitude towards its allies and systematic threats of sanctions were unacceptable. Bruno Le Maire warned that France wouldl never abandon its tax on digital giants.

France confirmed that it wanted an international solution to this issue: “we call on the US to continue negotiations on taxation of digital giants within the framework of the OECD, knowing that the vast majority of States support this proposal,” the French Economy Minister recalled in a statement. “This is the only way out of this dispute. Otherwise, we will apply our national tax in France (which was adopted in 2019) in 2021.”

The International Monetary Fund (IMF) also called on the US to come to an agreement on taxation: “It is very important to avoid trade wars, it is very important to avoid tax wars,” said Vitor Gaspar, Director of the Fiscal Affairs Department of the International Monetary Fund.

The measures taken by Washington are quite declarative, as they suppose additional six months for negotiations. Resolving differences within an international organization would be beneficial for both sides.

New Trade War: US Punishes France For Its Independent Policy

Turkish Navy frigate Gaziantep escorts drilling vessel Fatih October 30, 2018 © Reuters / Can Sezer

However, statements from the US have a great political significance. Protecting the interests of American digital giants allows Donald Trump to maintain support within the country before the upcoming elections.

At the same time, the US uses economic threats as a method of pressure on its partners on the other side of the Atlantic. In December 2019, Trump announced his intention to impose duties on French goods a few days before the NATO summit in London. This statement was intended to threaten French President Emmanuel Macron, who shortly before  had announced the “brain death of NATO”.

Today, discussions on the GAFA law resume at a time when France is also at the epicenter of NATO’s internal political disputes. France suspended its role in Operation Sea Guardian, accusing Turkey of violating an arms embargo against Libya. It came weeks after Turkish ships had targeted a French warship in the Mediterranean, what Ankara strongly denies. It is likely that Washington’s recent imposition of customs duties on French goods is intended only to threaten Macron for conducting France’s independent policy on the international arena.

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