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France says EU ready to respond strongly to latest US tariff threat amid digital tax spat

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FILE PHOTO An activist wearing a mask depicting Facebook's CEO Mark Zuckerberg demonstrates during the European Union finance ministers meeting in Brussels, 2018
FILE PHOTO An activist wearing a mask depicting Facebook's CEO Mark Zuckerberg demonstrates during the European Union finance ministers meeting in Brussels, 2018 -
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French Finance minister Bruno Le Maire said on Monday that the US threat to impose duties of up to 100% on ‎€2.17 billion in imports from France was "unacceptable" and that the EU stood ready to "respond strongly" in case Washington went ahead with the plan.

The US government announced also on Monday it was considering the new tariffs on Champagne, handbags, cheese and other products, after concluding that France's new digital services tax would harm US tech companies.

"I am not going to let France take advantage of American companies," Trump said on Tuesday as he attended a NATO summit.

France 'in a difficult situation'

Speaking to Euronews, Éric-André Martin, a research fellow at the French Institute of International Relations (IFRI), said that what prompted the US announcement was still unclear. One possibility, he said, is that France may have tried to "force the hands of its partners" to push its digital tax forward.

Le Maire and US Treasury Secretary Steven Mnuchin struck a compromise in August at a G7 summit in France that would refund US firms the difference between the French tax and a new mechanism being drawn up through the Organization for Economic Cooperation and Development.

But Trump never formally endorsed that deal and declined to say whether his French tariff threat was off the table.

"France put itself in a difficult situation," Martin said, and as a result, "the tariff problem is becoming bilateral while it should be multilateral."

"It is French farmers who will bear the weight of the sanctions," he added.

According to Martin, Le Maire's comments this morning are a way to force the EU to step into the spat -- but how and if the EU would respond remains to be seen.

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

The expert also noted that the US had repeatedly threatened to impose tariffs on the car industry but has postponed the decision. "We will see if they also want to enter into conflict with the EU on this point," the expert said, noting there was "a risk of escalation."

Falling shares

Shares in French luxury companies fell on Tuesday in response to the tariff threat.

Hermes was around 1.9% lower, while LVMH and Kering fell 1.3% and 1.2% respectively.

"It's too risky to go into the luxury sector. The sector was hit first of all by the Hong Kong protests, and now this will hit it even more," said Clairinvest fund manager Ion-Marc Valahu.

'Unusually burdensome' tax

The US Trade Representative's office said its "Section 301" investigation found that the French tax was "inconsistent with prevailing principles of international tax policy, and is unusually burdensome for affected US companies," including Alphabet Inc's Google, Facebook Inc, Apple Inc and Amazon.com Inc.

US Trade Representative Robert Lighthizer said the government was exploring whether to open similar investigations into the digital services taxes of Austria, Italy and Turkey.

"The USTR is focused on countering the growing protectionism of EU member states, which unfairly targets US companies," Lighthizer said. His statement made no mention of proposed digital taxes in Canada or Britain.

The US trade agency said it would collect public comments through January 14 on its proposed tariff list as well as the option of imposing fees or restrictions on French services, with a public hearing scheduled for January 7.

It did not specify an effective date for the proposed 100% duties.

Champagne, rouge and gruyere

The list targets some products that were spared from 25% tariffs imposed by the United States over disputed European Union aircraft subsidies, including sparkling wines, handbags and make-up preparations - products that would hit French luxury goods giant LVMH and cosmetics maker L'Oreal hard.

Gruyere cheese, also spared from the USTR aircraft tariffs levied in October, featured prominently in the list of French products targeted for 100% duties, along with numerous other cheeses.

The findings won favour from US lawmakers and US tech industry groups, who have long argued that the tax unfairly targets US firms.

"The French digital services tax is unreasonable, protectionist and discriminatory," Senators Charles Grassley and Ron Wyden, the top Republican and Democrat, respectively, on the Senate Finance Committee, said in a joint statement.

But prior to the release of the USTR's report, a French official said that France would dispute the trade agency's findings, repeating Paris' contention that the digital tax is not aimed specifically at US technology companies.

"We will not give up on taxation" of digital firms, the official said.

France's 3% levy applies to revenue from digital services earned by firms with more than 25 million euros in French revenue and 750 million euros worldwide.

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