In an unusual move that threatens to worsen trade tensions with Europe, the Trump administration said it will investigate whether a proposed French tax on tech companies discriminates against USA business, a step that could lead Washington to impose trade penalties.
Despite U.S. pressure, French officials stood firm on Thursday, brushing off the criticism. Previously, the Trump administration had used Section 301 to probe China's technology policies, which allowed for billions in tariffs on Chinese imports.
Ahead of the vote, U.S. Trade Representative Robert Lighthizer expressed concern that the tax, "unfairly targets American companies".
"The president has directed that we investigate the effects of this legislation and determine whether it is discriminatory or unreasonable and burdens or restricts United States commerce", he said.
"The digital services tax that France and other European countries are pursuing is clearly protectionist and unfairly targets American companies in a way that will cost United States jobs and harm American workers", they said in a joint statement.
French Economy and Finance Minister Bruno Le Maire delivers a speech during a high-level forum on debt at the Finance ministry in Paris, France, May 7, 2019.
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"I want to tell our American friends that this should be an incentive for them to accelerate even more our work to find an agreement on the worldwide taxation of digital services", he said. The Organization for Economic Cooperation and Development is working on a global solution on taxation for digital companies by 2020.
Bloomberg Tax reported the investigation earlier, citing two people familiar with the matter. The levy could affect USA companies including Airbnb and Uber as well as those from China and Europe.
The 301 investigation - the same type of probe that led the USA to slap tariffs on China a year ago - is a rare tool for Washington to use against a close ally, underscoring the Trump administration's intent to continue playing tough on trade.
Plans to launch trade talks between Washington and Brussels have, however, been hampered by USA tariffs on steel and by European Union states' reluctance to include farm products in the talks. "They don't have to just go after digital products".
Senate Finance Committee Chairman Chuck Grassley, a Republican, and Senator Ron Wyden, the top Democrat on the panel, praised the investigation. The lawmakers urged the U.S.to look at "all available tools under USA law to address such targeted and discriminatory taxation".
The French government says the tax does not specifically target USA companies and will affect European and Asian firms as well. France is the country most adamantly opposed to making any agriculture concessions.