USTR Considering Imposing Tariffs on Products From Six Countries in Retaliation for Imposition of Digital Service Taxes

Faegre Drinker Biddle & Reath LLP
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Faegre Drinker Biddle & Reath LLP

On March 26, 2021, U.S. Trade Representative (USTR) Katherine Tai reiterated that although the United States is committed to working with its trading partners, the government is nonetheless continuing the Section 301 trade investigations of digital service taxes (DSTs) begun by the Trump administration, in light of DSTs recently adopted by Austria, India, Italy, Spain, Turkey and the United Kingdom. The United States has alleged that these DSTs are unfair trade practices that would trigger potential retaliatory duties under Section 301 and could result in the imposition of up to $880 million in tariffs against certain imports from those six countries.

Background

Section 301 of the Trade Act of 1974 (Section 301) is a U.S. trade law that allows the USTR to enforce U.S. rights under trade agreements and address unfair barriers to U.S. exports.

On June 2, 2020, then-USTR Robert Lighthizer initiated a Section 301 investigation on DSTs adopted or under consideration by several countries and by the European Union. These investigations came against a backdrop of multilateral negotiations through the Organization for Economic Cooperation and Development (OECD) to address harmonization of international tax policy resulting from “digitalization” of the global economy.

In response to unilateral actions taken or contemplated by several countries to impose taxes on the provision of digital services, the Trump administration initiated Section 301 investigations, asserting that these DSTs discriminated against U.S. digital companies, were inconsistent with principles of international taxation and burdened U.S. companies.

On January 13, 2021, USTR Lighthizer issued reports on DSTs adopted by six of the countries. However, at that time, USTR Lighthizer deferred action, reportedly because USTR did not want to tie the hands of the incoming Biden administration.

USTR Tai’s Announcement on Moving Forward With the Investigations

In the action announced on March 26, 2021, the incoming USTR announced that it would move forward with the investigations, and issued separate notices seeking public comments on possible trade actions in the form of special tariffs, and proposed products on the retaliation list, with respect to imports from each of the six countries. The USTR terminated the Section 301 investigations against three other countries and the EU, because these jurisdictions have not yet either adopted or implemented a DST. In a press release announcing the next steps, USTR stated that it “is proceeding with the public notice and comment process on possible trade actions to preserve procedural options before the conclusion of the statutory one-year time period for completing the investigations.” In this case, the deadline for completion of the investigations would be June 2, 2021.

In the notices, USTR stated that it was considering imposing tariffs of up to 25% on certain products from each of the six countries, in an amount roughly equivalent to the amount that each country is expected to collect from U.S. companies under its DST. Specifically, the amount of the estimated duties the U.S. would collect under the proposed tariffs, with the linked documents detailing the corresponding products that would be subject to the Section 301 retaliatory duties, would be as follows:

Schedule for Written Comments and Public Hearings

USTR has established the following schedule for public comments and virtual hearings to allow interested parties to support or oppose the proposed Section 301 tariffs, or otherwise suggest changes to the proposed lists of products that would be subject to retaliatory duties:

  • Request to Appear at a Hearing: April 21, 2021
  • Pre-Hearing Written Comments Due: April 30, 2021
Multi-Jurisdictional Hearing May 3, 2021 May 10, 2021
Austria Hearing May 11, 2021 May 18, 2021
India Hearing May 10, 2021 May 17, 2021
Italy Hearing May 5, 2021 May 12, 2021
Spain Hearing May 6, 2021 May 13, 2021
Turkey Hearing May 7, 2021 May 14, 2021
U.K. Hearing May 4, 2021 May 11, 2021

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