The Trump administration is proposing tariffs on up to $2.4 billion worth of French imports, from Roquefort cheese to handbags, retaliation for France's tax on American tech giants like Google, Amazon and Facebook.
Monday's announcement was the result of the five-month investigation, in which the USTR "concluded that France's Digital Services Tax (DST) discriminates against USA companies, is inconsistent with prevailing principles of global tax policy, and is unusually burdensome for affected U.S. companies".
Shares in French luxury companies fell in response to the tariff threat against French champagne, handbags, cheeses and other products.
French products will not face tariffs immediately as the US Trade Representative still intends to gather public comments and hold a public hearing in January.
French Finance Minister Bruno Le Maire branded the United States threat unacceptable and said the French tax did not discriminate against American companies.
The U.S. tariffs and the French tax are likely to be a priority during a meeting between Trump and Macron on Tuesday, on the sidelines of a North Atlantic Treaty Organisation conference in London.
But we're back to square one and tariffs could jeopardize the OECD's work. He added the U.S. could investigate similar taxes by Austria, Italy and Turkey. "The USTR is focused on countering the growing protectionism of European Union member states, which unfairly targets US companies, whether through digital services taxes or other efforts that target leading US digital services companies".
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It said the tax was "unusually burdensome" for United States companies including Alphabet's Google, Facebook, Apple and Amazon.
The announcement came just hours before Trump is due to meet his French counterpart Emmanuel Macron on the sidelines of the North Atlantic Treaty Organisation summit in London on Tuesday.
Spain, Italy, Britain and several other European countries have separately announced plans to tax digital revenue, saying that technology companies avoid taxes by building subsidiaries in other countries.
He also noted that France will reimburse the tax if the US agrees to the worldwide tax plan. While most of the roughly 30 businesses affected are American, the list also includes Chinese, German, British and French companies.
Le Maire said France talked this week with the European Commission about EU-wide retaliatory measures if Washington follows through with the tariffs next month. His government is trying to use France's national tax as a bargaining chip, saying it would withdraw it if there is agreement on an global solution - in talks under the stewardship of the Organization for Economic Cooperation and Development.
Trump in August suggested tariffs of up to 100% on French wine and told aides that while he's not generally empathetic with USA tech companies, he believes it should be the US - not any other country - that taxes them, people familiar with internal deliberations said.