U.S. Targets French Luxury and Beauty Imports in Response to Digital Tax – 25% Tariffs on $1.3 Billion in French Imports Proposed

Kelley Drye & Warren LLP

On July 10, USTR published a notice of action in the Section 301 investigation of France’s digital services tax announcing the imposition of additional 25 percent duties on certain products from France covering an estimated $1.3 billion of trade. The additional tariffs are effective January 6, 2021, pursuant to a 180-day suspension period.

A comprehensive list of the 21-covered product tariff subheadings is included in Annex A of the Federal Register Notice announcing the action.  Examples of products subject to the additional tariff include cosmetics, beauty products, soaps and handbags.

The imposition of tariffs follow USTR’s July 2019 investigation and December 2019 finding that France’s digital services tax is unreasonable or discriminatory and burdens or restricts U.S. commerce.  USTR held hearings in January 2020 to seek comment and input on the proposed application of 100 percent duties on a proposed list of 63 products from France.  The final list of products subject to an additional 25 percent tariff is a subset of the proposed list.  Notably, the final retaliatory list excludes Champagne, cheese and fine dinnerware, which were among the proposed products.

According to the announcement, USTR issued the 180-day suspension to allow additional time for bilateral discussions and multilateral negotiations that could potentially lead to a satisfactory resolution of the dispute.  USTR further advises it could decide to impose tariffs at an earlier date and would issue a subsequent notice amending the effective date if it makes that determination.

USTR had initially determined to withhold taking action under this investigation in exchange for France’s agreement to delay collection of its digital services tax pending multilateral negotiations through the OECD to determine consensus on how to tax the activities of digital companies offering services outside a taxing jurisdiction. Those negotiations, however, have experienced setbacks as some OECD members have proceeded to enact and implement digital services taxes notwithstanding ongoing discussions, and it remains unclear whether calls for continued global talks will result in an outcome where the U.S. proceeds with or drops its proposed 301 tariffs.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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