France and the U.S. Reach Temporary Agreement Amidst Escalating Tension

Presidents Macron and Trump agree to delay tariffs. (Department of Defense)

French President Emmanuel Macron and President Donald Trump reached a temporary truce on January 20 by agreeing to pause tariffs from both countries until the end of 2020. 

France and the U.S. established the detente after back and forth propositions to impose tariffs on vital segments of each other’s economy. At the start of the year, France was expected to impose a three percent tax called “la taxe Gafa,” which takes its name from the first letters of Google, Apple, Facebook, and Amazon. The tax was expected to generate €400 million ($441 million) in revenue for the country. 

However, the United States insisted that this tax would discriminate against American companies. In retaliation, Trump threatened to impose a 100 percent tariff on French goods such as wine, cheese, and handbags. A 25 percent tariff had already been imposed on French wines due to a separate dispute between the U.S. and the European Union over government subsidies for aircraft manufacturer Airbus. 

Following their most recent agreement, Macron announced that he had a “great discussion” with Trump. French Finance Minister Bruno Le Maire elaborated that France and the U.S. had “agreed to avoid all escalation… on this digital tax issue.” France had conceded to delay receiving tax payments from the US corporations, and negotiations have been extended until the end of the year in hopes of developing more universal digital taxation laws under the Organisation for Economic Cooperation and Development (OECD). The United States’ proposal to the OECD last December, which would make regulations voluntary, was rejected by France. The French government insisted on mandatory regulations in order to create a basis that, according to Le Maire, is “credible, solid, and fair.” 

France, along with other European countries such as the UK, Spain, and Italy, announced that they would remove national digital taxation plans once a uniform taxation code is agreed upon and set by the OECD. Le Maire and U.S. Treasury Secretary Steven Mnuchin have met multiple times this week to continue discussing the agreement, although Le Maire has noted that negotiating a compromise between the two countries will “remain difficult.”    

While the two countries are both cautious and eager to avoid any additional tariffs, they maintain very different positions on how technology companies should be taxed. Negotiations throughout this year will focus on establishing fair taxation standards that both countries are willing to follow. However, the agreement could help set a precedent for how countries regulate technology companies with increasing digital presences.