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US wine and cosmetic importers fear harm in response to French digital services tax

USTR proposes tariffs up to 100 percent on French products after France imposed 3 percent tax on US tech companies

A worker collects grapes in September 2019 in a vineyard near Rauzan in the Entre-Deux-Mers region near Bordeaux, southwestern France. The U.S Trade Representative wants to impose tariffs on French products from wine and cheese to cosmetics and cookware because of a tax that France imposed on U.S. companies providing digital services. (Georges Gobet/AFP via Getty Images)
A worker collects grapes in September 2019 in a vineyard near Rauzan in the Entre-Deux-Mers region near Bordeaux, southwestern France. The U.S Trade Representative wants to impose tariffs on French products from wine and cheese to cosmetics and cookware because of a tax that France imposed on U.S. companies providing digital services. (Georges Gobet/AFP via Getty Images)

Hundreds of wine merchants and other importers delivered a common complaint to the U.S. Trade Representative ahead of a Tuesday hearing on proposed retaliatory tariffs for France’s tax on digital services: Our products should not be collateral damage in a trade war over services.

“I know that both the Digital Tax and the Airbus subsidies are by all accounts unfair, but our business and many, many others right here in the US(!) will be collateral damage to other industries that we have nothing to do with,” Douglas Polaner, a wine importer in Mt. Kisco, New York, complained in comments filed in the pre-hearing docket.

U.S. cosmetic importers echoed wine industry complaints.

“The proposed tariffs would target cosmetic and personal care products, which are consumer end products entirely unrelated to the underlying issue that the Administration’s Section 301 investigation concerns,” said Francine Lamoriello, vice president at the Personal Care Products Council. “Imposing the proposed tariffs, at any level, would aggravate the already considerable negative impact that the many rounds of China tariffs have had on our industry, and would do more harm than good to the U.S. economy.”

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The USTR has proposed duties of up to 100 percent on French products, ranging from porcelain to cook pots to wine and cheese. The hearing follows a Dec. 2 determination that the 3 percent tax imposed by France on digital advertising and marketplace services offered by U.S. tech companies is “unreasonable or discriminatory and burdens or restricts U.S. commerce.”

Several of the wine merchants complained that they already face tariffs imposed in retaliation for subsidies to Airbus, a trade measure explicitly sanctioned by a World Trade Organization decision. But the USTR’s proposed action against the digital tax under Section 301 of 1974 U.S. trade law would be unilateral.

“I strongly urge you not to impose these tariffs on the wine distribution and hospitality industry for problems we didn’t cause,” said Jeffrey Hickenlooper, an Ohio wine wholesaler. “It would help if you punished those responsible. Punishing Airbus and their suppliers and French digital services companies would be much more effective, as well as fair.”

A comment from one U.S. trade group that supports tariff increases highlighted the often arbitrary patterns of trade retaliation, with goods in one sector paying the price for seemingly unrelated actions. The National Milk Producers Federation complained of aggressive use of geographic indications (GI) by EU cheese producers and burdensome certification measures.

“Considering this clear disparity of treatment, we encourage the U.S. to ensure that the tariff codes under which French cheeses with unreasonable GI protection fall are adequately captured on USTR’s final retaliation list, in addition to the dairy product tariff lines already included,” the association wrote in comments filed in the regulatory database.

Another trade association countered with a more general criticism of the proposed tariffs that captured the dissatisfaction of many companies, especially manufacturers, caught up in Trump administration trade actions.

“The widespread use of Section 301 tariffs has created real problems for companies who source inputs from all over the world and manufacture finished goods in the United States for the domestic market or export to foreign markets,” wrote Marianne Rowden, of the American Association of Exporters and Importers. “The lack of predictability concerning input costs places a lot of pressure on U.S. companies’ profit margins.”

Testimony from the Information Technology Industry Council sidestepped the question of whether the USTR should retaliate against the digital tax and said that “the simplest way to avoid further escalation” would be for France and other countries to withdraw the tax measures and focus on negotiations to reach a multilateral agreement at the Organization for Economic Cooperation and Development.

“Let me reiterate that the significance of this issue goes well beyond the French DST, or tax policy in general,” Sam Rizzo, director of policy for ITI, said in prepared testimony. “It is about preventing the widescale application of targeted, unilateral taxes, that would undermine a functioning international tax system and compromise predictability for businesses locally.”

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