On January 7, 2021, the United States Trade Representative (USTR) announced that new tariffs on certain French products are indefinitely suspended. According to USTR, the duties — which resulted from a Section 301 investigation of France’s Digital Services Tax (DST) and were set to take effect on January 6, 2021 — are being set aside as a means of “promot[ing] a coordinated response” to other DSTs that have been proposed or adopted in the European Union (EU) and multiple countries.

Background

On July 16, 2019, USTR initiated a Section 301 investigation regarding the DST passed in July 2019 by the French Parliament, which imposes a 3% additional tax on gross revenues derived from advertising targeted toward French users based on user data and certain digital services provided to French users.

In December 2019, after completing its investigation, USTR issued a report with the following conclusions:

• The DST discriminates against U.S. companies.

• The DST is inconsistent with international tax principles due to its retroactivity, extraterritorial application, and emphasis on revenue rather than income.

• The DST would target numerous large U.S. companies.

Per these conclusions, USTR proposed ad valorem duties of up to 100% on certain French imports covering 63 tariff subheadings with an approximate trade value of $2.4 billion.

On July 16, 2020, following a notice and comment period, USTR tailored its original proposal and announced the imposition of ad valorem duties of 25% on specified French products, including cosmetics, soaps, handbags and organic body wash.

USTR Announces Indefinite Suspension

USTR’s announcement, set out in a notice to be published in the Federal Register, provides that the Section 301 duties on French goods (as detailed in Annex A of the July 16, 2020, notice) are “suspended indefinitely.” Notably, due to a delay in publishing the suspension and miscommunication between the agencies, the tariff schedule was temporarily updated to reflect the new Chapter 99 retaliatory duties, which caused some confusion.

According to USTR, the suspension was prompted by a desire to coordinate a response to multiple Section 301 investigations. As explained in our previous client alert, on June 5, 2020, USTR announced the initiation of Section 301 investigations into DSTs proposed or enacted by the EU, Austria, Brazil, the Czech Republic, India, Indonesia, Italy, Spain, Turkey and the United Kingdom. Although USTR recently issued similar findings related to its investigations of the DSTs adopted in India, Italy and Turkey, no specific actions are being taken again those countries at this time. The remaining investigations are ongoing, although USTR says it expects to announce their “progress or completion … in the near future.”

Ultimately, the USTR’s suspension of further actions against the French DST will push the final decision to the incoming Biden administration, which will then decide how to address the issue, including whether to apply retaliatory duties to oppose the DSTs implemented in multiple jurisdictions or seek a negotiated resolution or multilateral agreement through the Organization for Economic Cooperation and Development.

Faegre Drinker will continue to closely monitor these developments and provide timely updates as developments warrant. If you have any questions about these matters, please contact any member of Faegre Drinker’s Customs and International Trade team.