On Friday, USTR announced its next steps in many of the Section 301 digital services tax cases:
The United States Trade Representative (USTR) today announced the next steps in its Section 301 investigations of Digital Service Taxes (DSTs) adopted or under consideration by ten U.S. trading partners. In January, USTR found that the DSTs adopted by Austria, India, Italy, Spain, Turkey, and the United Kingdom were subject to action under Section 301 because they discriminated against U.S. digital companies, were inconsistent with principles of international taxation, and burdened U.S. companies. USTR is proceeding with the public notice and comment process on possible trade actions to preserve procedural options before the conclusion of the statutory one-year time period for completing the investigations.
Here's what Ambassador Tai said about it:
“The United States is committed to working with its trading partners to resolve its concerns with digital services taxes, and to addressing broader issues of international taxation,” said Ambassador Katherine Tai. “The United States remains committed to reaching an international consensus through the OECD process on international tax issues. However, until such a consensus is reached, we will maintain our options under the Section 301 process, including, if necessary, the imposition of tariffs.” (emphasis added)
The federal register notices related to all this are here. To elaborate on the point about tariffs that Tai made, this is from the Federal Register notice related to the UK:
Section 301(c)(1)(B) of the Trade Act authorizes the U.S. Trade Representative to impose duties on the goods of the foreign country subject to the investigation. Pursuant to sections 301(b) and (c), USTR proposes that the U.S. Trade Representative should determine that action is appropriate and that appropriate action would include the imposition of additional ad valorem tariffs on certain products of the United Kingdom.
In particular, USTR proposes to impose additional tariffs of up to 25 percent ad valorem on an aggregate level of trade that would collect duties on goods of the United Kingdom in the range of the amount of the DST that the United Kingdom is expected to collect from U.S. companies. Initial estimates indicate that the value of the DST payable by U.S.-based company groups to the United Kingdom will be up to approximately $325 million per year.
USTR further proposes that the goods of the United Kingdom subject to additional tariffs would be drawn from the preliminary list of products in the Annex to this notice, as specified by the listed eight-digit tariff subheadings.
Perhaps not coincidentally, there's a Wall Street Journal article today which quotes Tai as saying the following in the context of the Section 301 tariffs on China:
“No negotiator walks away from leverage, right?” she said.
...
“Every good negotiator retains his or her leverage to use it,” she said. “Every good negotiator is going to keep all of their options open.”
We'll never know if Tai and her trade team would have used Section 301 to deal with the digital services tax issue if they had been in charge when it arose. But they inherited a complex situation and are trying their best to manage it. I can imagine they thought that a clear indication that they would not use tariffs here would have come across as too "soft" on the issue, and didn't want to send that signal in the midst of a tough negotiation. At the same time, actually imposing these tariffs is likely to provoke retaliation and probably wouldn't help generate a resolution, and my hope is that they do not expect to use the tariffs, despite how clearly they laid them out in the Federal Register notices.
