United States: Trump Administration Issues New Retaliatory Measures Against EU – And Threatens More

Co-authored by Alexandra Bochnakova

Highlights

• The U.S. Trade Representative has announced that, effective this month, it is increasing the Airbus 301 tariffs from 10 to 15 percent for new Airbus aircraft and from 10 to 25 percent for a long list of other goods of certain European Union (EU) member states.
• Companies should review the U.S. Trade Representative's Federal Register notice to determine whether products that they import or rely on as components are negatively affected by the imposed increases.
• The Trump Administration also has threatened a response to France's new Digital Services Tax law that could include tariffs on cars imported from the EU. If a Digital Services Tax agreement between the U.S. and the EU, or a broader-range trade agreement, is not achieved, it is highly likely that additional duties will be applied to goods from the EU.

There have been several recent developments in trade disputes involving the Trump Administration and the European Union (EU), including an increase by the U.S. Trade Representative in tariffs on new Airbus aircraft and numerous other EU goods. The Administration also has threatened a response to France's new Digital Services Tax law that could include tariffs on cars imported from the EU.

This Holland & Knight alert takes a closer look at each of these developments.

Civil Aircraft Dispute

The U.S. Trade Representative announced on Feb. 21, 2020, that it is increasing the Airbus 301 tariffs from 10 to 15 percent for new Airbus aircraft and from 10 to 25 percent for a long list of other goods of certain European Union (EU) member states. The U.S. Trade Representative's notification of increased tariffs is the latest move in what has been a long-running dispute between the United States and the EU. Each claims that the other's airplane manufacturer (i.e., Airbus and Boeing, respectively) is being unfairly subsidized. In 2006, the U.S. first filed a case with the World Trade Organization (WTO) claiming that Airbus (jointly owned by Germany, France, Spain, and the United Kingdom's BAE Systems) had received $22 billion in illegal subsidies. In June 2010, the WTO ruled in favor of the U.S. In September 2016, the WTO confirmed that the European governments not only failed to meet the compliance deadline to remedy $17 billion worth of past subsidies provided to Airbus, but had since provided an additional $5 billion in illegal aid.

After it declined to engage in a settlement proposed by the EU in July 2019, the U.S. indicated that it expected to impose retaliatory tariffs of $11 billion per year on EU exports, covering airplanes, cheese, fish, wine, clocks and other products. This figure represents the amount of harm that the USTR estimated European subsidies cause each year to U.S. industry. The EU counter punch is a request that the WTO authorize $12 billion in countermeasures once the WTO issues its decision in the Boeing case, which is expected in the next couple of months.  

In October 2019, the U.S. was awarded the right to impose tariffs on $7.5 billion of annual EU imports in the case against Airbus. The U.S. imposed partial tariffs on most Airbus aircraft, as well as on additional products such as cheese, olives and single-malt whisky.

The EU Trade Commission said it would consider its next steps, including a possible appeal, while seeking an overall agreement.

However, the appeal process is unlikely. As of Dec. 10, 2019, the WTO Appellate Body ceased to function due to the U.S. blocking new appointments. At this juncture, appeals launched fall into a legal black hole.

On Dec. 12, 2019, the U.S. Trade Representative invited comments regarding the imposition of retaliatory duties. (See Holland & Knight's previous alert, "U.S. Considers Expansion of Tariffs in Aircraft Trade Dispute," Jan. 6, 2020.) The notification includes two annexes: Annex I lists the specific products that are currently subject to additional duties of 10 percent to 25 percent; Annex II lists products for which additional duties of up to 100 percent are proposed (but for which no additional duties have yet been imposed).

For the latest increases, the higher tariffs for products listed in Annex I (A) and (B) go into effect for products that are entered for consumption or withdrawn from warehouse for consumption on or after 12:01 a.m. (ET) on March 5, 2020. The higher tariffs for products listed in Annex I (C) go into effect for products that are entered for consumption, or withdrawn from warehouse for consumption on or after 12:01 a.m. (ET) on March 18, 2020.  

Companies should review the U.S. Trade Representative's Federal Register notice to determine whether products that they import or rely on as components are negatively affected by the imposed increases.

Digital Tax Dispute

The French Digital Services Tax law imposes a 3 percent tax on annual revenues generated by companies that provide certain digital services to, or aimed at, French users. The tax applies only to companies with annual revenues from the covered services of at least 750 million euros globally (approximately $835.5 million) and 25 million euros in France. The services covered are the ones for which U.S. firms are global leaders.

Negotiators had been working at the Organization for Economic Cooperation and Development (OECD) since 2017 to address global public outrage over perceived tax avoidance by the world's biggest tech companies. The sides appeared to be close to a consensus last year on a proposal that would grant market countries — where consumers or online users are located — greater taxing rights on multinational corporations, regardless of whether those corporations have a physical presence in the jurisdiction.

However, in December 2019, Steven Mnuchin, the U.S. Secretary of the Treasury, informed the OECD that the U.S. would not support the idea, claiming it would run afoul of current tax principles and proposing that the system be implemented only as an optional safe harbor for taxpayers to avoid uncertainty with audits or enforcement. However, the U.S. Safe Harbor Plan, an optional taxation plan, was not considered by France as a credible alternative.

If a Digital Services Tax agreement between the U.S. and the EU, or a broader-range trade agreement, is not achieved, it is highly likely that additional duties will be applied to goods from the EU.

On Jan. 21, 2020, after meeting with the head of the European Commission, President Donald Trump renewed his threat to impose tariffs on cars imported from the EU in an interview at the World Economic Forum in Davos, Switzerland, with CNBC. The U.S. and the EU have been struggling to launch formal trade negotiations and started with a disagreement as to the scope of negotiations.

In addition, Trump announced at the World Economic Forum that now that the trade agreement with China has been finalized, he could engage with the European Union. Trump also indicated that he had a date in mind to set up tariffs on cars imported from the EU, implying that it would be soon.

Where the Digital Services Tax dispute and the broader trade negotiations will go is difficult to foresee at this point, given the volatility of the Trump Administration's trade agenda, the upcoming U.S. election season and the coronavirus scare.

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