USTR begins hearings on digital services taxes today
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— The U.S threat to impose tariffs on potentially billions of dollars’ worth of goods from six countries is back in the spotlight today as the Biden administration begins seven days of hearings on foreign e-commerce tax plans that it says are unreasonable and discriminatory.
— The U.S. should work with its allies to create “reciprocal” anti-dumping and countervailing duties to counteract the unfair trade practices of nonmarket economies like China, Sen. Bob Casey (D-Pa.) said on Friday in a speech that blasted Beijing.
— India and South Africa will consult with other WTO members to see whether they can revise their request for a broad waiver of intellectual property protections for Covid-19 vaccines and related products to make it more palatable to opponents like the U.S. and the European Union.
It’s Monday, May 3. Welcome to Morning Trade. It’s time to repair any leaks in your garden hose, according to my 1974 Popular Science Homeowners Guide. You can use an auto tube-patching kit or a soldering gun, depending on the type of hose. Another option is a metal hose mender, available at some hardware stores or by mail-order catalogue, the book says.
Morning Trade doesn’t fix hoses, but we do accept leaks. Send them our way: [email protected], [email protected] and [email protected].
EUROPE’S DIGITAL SERVICE TAXES IN THE CROSSHAIRS: USTR’s potential action against Austria, India, Italy, Spain, Turkey and the U.K. has its roots in the Trump administration.
But U.S. Trade Representative Katherine Tai, in one of her first moves after taking office in March, issued a set of reports that found each of the six countries had adopted a digital service tax that unfairly hurts U.S. commercial interests.
The Trump administration targeted three other countries — Brazil, the Czech Republic and Indonesia — as well as the 27-nation EU, for tariff retaliation under a trade law provision known as Section 301. Tai terminated those cases because they had not yet adopted or implemented any digital service taxes, but reserved the right to revisit the issue if they did.
OECD talks: This week’s hearings take place as prospects for reaching an international deal on digital services taxes by the middle of this year have brightened at the Organization for Economic Cooperation and Development, which is hosting the negotiations. In that case, no U.S. tariffs would be imposed.
The OECD talks have “definitely” advanced since Treasury Secretary Janet Yellen and her team took the reins, Chip Harter, a consultant with PwC, told our colleagues at Morning Tax. Harter was Treasury’s lead negotiator under Yellen’s predecessor, Steven Mnuchin.
The main difference has been the Biden administration dropping Mnuchin’s desire for the new tax regime to “be essentially voluntary, something that multinationals opt into,” he said.
“At the same time, individual governments have continued to propose, enact, and collect increasingly expansive DSTs that attempt to ring-fence the digital economy, target
U.S.-headquartered firms, and are inconsistent with prevailing international tax and trade principles,” Megan Funkhouser, director of policy at the Information Technology Industry Council, will testify later today at the interagency hearing chaired by USTR.
Clock ticking: Under the Section 301 statute, USTR is required to conclude the six remaining investigations within one year of when they were launched in early June 2020. So USTR is expected to announce a final retaliation list against each of the six countries in the weeks after the hearings wrap up on May 11.
However, even if it announces those individual tariff lists, it most likely will suspend them for six months to allow time for continued negotiations. The Trump administration did that last year in an earlier investigation against France’s digital services tax. Then, in January, the Trump administration suspended the tariff threat against France “indefinitely.”
The potential tariff hit: In its investigations, USTR found that U.S. internet companies face a combined digital services tax liability of up to $880 million in the six countries. The estimated tax liability in the U.K. alone could be as high as $325 million, USTR said.
That is followed by an estimated tax liability of $160 million in Turkey, $155 million in Spain, $140 million in Italy, $55 million in India and $45 million in Austria, USTR said.
In the earlier French case, USTR found that U.S. internet companies would have to pay an estimated $450 million in digital service taxes in 2020 and an estimated $500 million in 2021. Based on those figures, it targeted $1.3 billion worth of French goods with a 25 percent tariff in retaliation, giving some hint of how the Biden administration could proceed.
Targeted goods: USTR’s preliminary retaliation list for the U.K. includes cosmetics, clothing, footwear, jewelry, furniture and merry-go-rounds.
Targeted Austrian goods include glassware and grand pianos; Indian goods include shrimp, cigarette papers, bras and jewelry; Italian goods include anchovies, caviar, handbags and clothing; Spanish goods include shrimp, octopus, handbags, hats, footwear and glassware; and Turkish goods include carpets, bed linens, ceramics and jewelry.
USTR kicks off the hearings today with an overarching session focused on the DST arrangements in all six countries, followed by four more sessions in the following days focused individually on the U.K., Italy, Spain and Turkey. Two more sessions on India and Austria take place next week.
All the hearings will be live streamed at www.ustr.gov/live.
CASEY: U.S. NEEDS NEW TOOLS TO FIGHT CHINESE TRADE PRACTICES: The U.S. and other market economies should create a “reciprocal” trade remedy program to combat unfair foreign trade practices, Casey said on Friday.
“We should consider working with allies to create a common defense against illegal subsidies from nonmarket economies like China,” the Senate Finance Committee member said at a virtual event hosted by the Economic Policy Institute. “This could mean establishing reciprocal remedies against trade distortions, such as illegal subsidies. Measures could be limited scope, such as anti-dumping or countervailing duties on goods from these nonmarket economies.”
Casey’s remarks came as the Senate Finance Committee continues to work on putting together a bipartisan trade package that would be part of a larger China competitiveness bill that Senate Majority Leader Chuck Schumer hopes to pass in coming weeks.
By “reciprocal,” Casey means an anti-dumping or countervailing duty applied against nonmarket economies in one jurisdiction like the U.S. would also apply in another jurisdiction like the EU, a Casey spokesperson said. The senator also wants the U.S. to work with allies to stop companies from illegally transshipping products to avoid paying duties, the aide added.
Casey touched on a few other issues that could end up in the Senate Finance Committee package, such as a provision that would give USTR a new tool to fight Chinese attempts to censor corporate criticism of its policies. “Measures could include disclosure of censorship requests by nonmarket economies backed by strong responses by our federal government,” he said.
The third-term senator also called for Congress to establish “outbound investment review mechanisms to ensure that we’re not losing critical capacities to foreign adversaries,” and to insist that any future U.S. trade agreement include a supplemental “rule of origin” for nonmarket economies to prevent China from indirectly benefiting from the pact.
INDIA, SOUTH AFRICA TO REVISE TRIPS WAIVER PROPOSAL: India and South Africa told other WTO members on Friday they would revise their request for a broad waiver of intellectual property protections for Covid-19 vaccines, diagnostics and therapeutics after it failed once again to get the unanimous support needed for approval, a Geneva trade official said.
The co-sponsors, at a meeting of the WTO’s Council on Trade-Related Aspects of Intellectual Property Rights, said they would engage with members on both sides of the debate with the objective of finding common ground, but did not elaborate on how their nearly eight-month-old proposal could be changed, the Geneva trade official added.
Sixty of the 164 WTO members are official co-sponsors of the proposal. Opponents, including the U.S. and the EU, have refused to engage in a text-based negotiation with the proponents.
On Friday, the TRIPS Council approved a report that recommends continuing to discuss the waiver. That will be given to the General Council, the WTO’s main decision-making body, which meets this Wednesday and Thursday. WTO rules call for such waivers to be approved or rejected within 90 days. But due to the sensitivity of the issue, opponents have agreed several times to continue discussing the waiver rather than kill it outright.
The TRIPS Council Chair, Ambassador Dagfinn Sørli of Norway, said Friday he saw some reason for some “careful optimism” after the latest exchanges, particularly because of the co-sponsors’ plan to revise the proposal, the Geneva trade official relayed.
Those countries said they are working on a timeline to discuss and circulate their new text. Sørli suggested the possibility of meeting in the second half of May to assess progress. The revised text would potentially be presented at the formal TRIPS Council meeting scheduled for early June, the Geneva trade official said.
Tai meetIngs: Tai on Friday continued her talks with pharmaceutical industry executives. She met with Johnson & Johnson Vice Chairman Joaquin Duato, following other meetings last week with Moderna CEO Stéphane Bancel, Novavax Executive Vice President John Trizzino, Pfizer Chair Albert Bourla and AstraZeneca Executive Vice President Ruud Dobber.
Both Tai and the White House Covid-19 response coordinator, Jeff Zients, also met Friday with congressional proponents of the waiver, including Reps. Jan Schakowsky (D-Ill.), Lloyd Doggett (D-Texas), Rosa DeLauro (D-Conn.), Earl Blumenauer (D-Ore.), Chuy García (D-Ill.), Barbara Lee (D-Calif.), Adriano Espaillat (D-N.Y.) and Andy Levin (D-Mich.).
The Washington Post reported Tai has told colleagues that she’s considered advocating to lift some patent protections, but is still gathering information.
ONE AND NONE FOR TPA: President Joe Biden’s first speech to a joint session of Congress last week put a strong emphasis on standing up to unfair foreign trade practices and modernizing the U.S. industrial base to compete with China. But he passed over the chance to call for renewal of trade promotion authority, which expires on July 1, or even a short-term extension to complete trade talks with the U.K. and Kenya.
The last time TPA expired in 2007, it was eight years before it was renewed. Then-President Barack Obama made his first formal call for renewal in his 2014 State of the Union speech, five years after taking office. He repeated the call in his 2015 speech, and TPA was passed later that year after an epic battle in the House of Representatives, with most Democrats voting no.
For now, the business community is taking the upcoming expiration in stride, given Congress’ current focus on pandemic recovery and infrastructure.
“TPA is very important, but it isn’t as urgent as those issues today,” said John Murphy, senior vice president for international policy at the U.S. Chamber of Commerce. “We think interest in TPA will rise as the year goes on, so we anticipate discussion to tick up. Meanwhile, we’re continuing to press for action on [renewal of the Generalized System of Preferences and the Miscellaneous Tariff Bill] and some priorities among the China legislation under consideration.”
HARRIS, TAI TO SPEAK AT COUNCIL OF AMERICAS EVENT: Vice President Kamala Harris, Secretary of State Antony Blinken, Commerce Secretary Gina Raimondo, Tai and John Kerry, the special presidential envoy for climate, will turn to Western Hemisphere affairs on Tuesday at the Council of Americas’ annual conference.
Tai’s speech is titled “A New Approach to Trade.” Raimondo is scheduled to discuss opportunities for Latin America in the global economy.
— Secretary of State Antony Blinken is attending the G7 Foreign and Development Ministers’ Meeting in London beginning today, the State Department says.
— A new UNCTAD report says Covid-19 helped boost online retail sales in 2020, but hurt e-commerce platforms for ride-hailing and travel.
— USTR dropped UAE from its watch list of global IP violators, POLITICO reports.
— Intel CEO wants $8 billion in public funding for EU chip plant, POLITICO reports.
— Biden’s united democratic front undermined by European backsliding, POLITICO reports.
— South Korea’s exports in April increased by most in 10 years, Bloomberg reports.
— Russia’s attempt to expand Sputnik vaccine sets off discord in Europe, The New York Times reports.
— South Africa recorded its largest trade surplus on record in March, Reuters reports.
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