Yesterday, the U.S. Trade Representative announced a new investigation under Section 301 of the proposed new French digital services tax. The French bill would impose a 3% tax on the French revenues of hi tech companies providing digital services in France if their worldwide revenues exceed 750 million euros ($840 million) or French revenues exceed 25 million euros ($28 million).
The new 301 investigation was greeted with bipartisan support on Capitol Hill and from leading industry groups.
Here are some important things to keep in mind:
- This is not the start of a trade war with France. Section 301 is the same statute used to challenge China’s trade-distortive practices on technology transfer, IP, and state-owned enterprises. But the use of Section 301 does not necessarily signal tariffs as with China. Section 301 gives great discretion to the President and to USTR as to remedies under Section 301. For example, USTR can suspend or withdraw trade agreement benefits, enter into negotiations with the offending country, and restrict or deny service sector authorizations.
- The use of Section 301 is particularly warranted here, because there are no clear WTO rules on digital services taxes. Normally, the United States would be required to bring a dispute to the WTO rather than use Section 301, but clearly the 25-year-old rules of the WTO fail to govern digital services taxes.
- This investigation allows the Trump Administration to help defend some of the largest and most successful U.S. tech companies (such as Amazon, Google, Facebook, and others), who have been under attack abroad in the EU, China, and elsewhere.
- Finally, the probe targets a single country’s unilateral action, which sends an important warning for other countries trying to limit global trade in digital services.
The investigation will move quickly, but there are important opportunities for companies and industries to weigh in early on the scope of this trade barrier and the most appropriate remedies.