LDN - Business

France and EU say primed to retaliate over U.S. tariff threat

[December 03, 2019] By Sudip Kar-Gupta and Leigh Thomas

PARIS (Reuters) - France and the European Union said on Tuesday they are ready to retaliate if U.S. President Donald Trump acts on a threat to impose duties of up to 100% on imports of champagne, handbags and other French products worth $2.4 billion.

The threat of punitive tariffs came after a U.S. government investigation found France's new digital services tax would harm U.S. technology companies, and will intensify a festering trade dispute between Europe and the United States.

"They're starting to tax other people's products so therefore, we go and tax them," Trump said in London on Tuesday ahead of a NATO alliance summit.

He had earlier said he would not allow France to take advantage of American companies and that the European Union treated the United States very unfairly on trade.

French Finance Minister Bruno Le Maire branded the latest U.S. tariff threat unacceptable and said the French tax did not discriminate against American companies.

"In case of new American sanctions, the European Union would be ready to retaliate," Le Maire told Radio Classique.

He later told a news conference: "We are not targeting any country."

The tariff spat marks a new low in testy relations -- from an early bone-crunching handshake to the U.S. president appearing to flick dandruff off the younger man's shoulder -- between Trump and French President Emmanuel Macron.

The two leaders, who will meet later at the summit, have been at odds over the American's unilateralist approach to trade, climate change and Iran.

The European Commission said the 28-nation EU would act as one and that the best place to settle disputes was at the World Trade Organization.

The United States has already imposed 25% duties on French wine and cheese as part of its WTO-sanctioned response to illegal EU aircraft subsidies, a move exporters warned would penalize U.S. consumers while severely hurting French producers.

INTERNATIONAL SOLUTION

France's 3% levy applies to revenue from digital services earned by companies with more than 25 million euros ($27.86 million) of revenues from France and 750 million euros ($830 million) worldwide.

An investigation by the U.S. Trade Representative's office found the French tax was "inconsistent with prevailing principles of international tax policy".

It said the tax was "unusually burdensome" for U.S. companies including Alphabet Inc's Google <GOOGL.O>, Facebook Inc <FB.O>, Apple Inc <AAPL.O> and Amazon.com Inc <AMZN.O>.

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Agnes Pannier-Runacher, French Economy Junior Minister, speaks during the questions to the government session at the National Assembly in Paris, France, November 27, 2018. REUTERS/Gonzalo Fuentes

France is not alone in targeting big digital companies; a growing number of other countries are preparing their own taxes.

Governments, including Washington, are frustrated that big digital companies can book earnings in low-tax countries like Ireland regardless of where the end client is.

Le Maire repeated a promise to drop the French digital tax as soon as an agreement is found at the Organisation for Economic Cooperation and Development to overhaul decades-old international tax rules.

"We are ready to adopt the OECD solution on digital tax. If the U.S. do the same, then it's the end of the issue," Le Maire told journalists.

While Washington originally sought a wide scope for a new international tax system, officials say it has got cold feet in recent months after coming under pressure from traditional companies which realized they would be affected too.

FRENCH LUXURY STOCKS FALL

Shares in French luxury companies fell in response to the tariff threat against French champagne, handbags, cheeses and other products.

Hermes <HRMS.PA> was around 1.9% lower, while LVMH <LVMH.PA> and Kering <PRTP.PA> fell 1.3% and 1.2% respectively.

French products will not face tariffs immediately as the U.S. Trade Representative still intends to gather public comments and hold a public hearing in January.

Based on past experience of Section 301 tariffs, primarily applied to Chinese goods, France would face punitive tariffs in two or three months.

Any retaliatory action from France would have to be taken at an EU-wide level because the bloc is a customs union which applies duties at its border.

Le Maire said the dispute had already been raised with EU partners and that France could "count on European solidarity". He will meet new EU Trade Commissioner Phil Hogan on Wednesday to discuss the matter.

(Reporting by Sudip Kar-Gupta, Leigh Thomas and Benoit Van Overstraeten in Paris; Additional reporting by Philip Blenkinsop in Brussels and Andy Bruce in London; Writing by Richard Lough; Editing by Catherine Evans)

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