Digital services tax in the spotlight - Politico

With help from Doug Palmer and Jakob Hanke

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— The Office of the U.S. Trade Representative is holding a hearing this morning on planned retaliation to France’s digital services tax, which could include 100 percent tariffs on billions worth of French goods.

— Members of the Senate Finance Committee will discuss the USMCA at a markup this morning, even though it’s unclear when the full chamber might vote on the deal.

— A Chinese news outlet is warning Washington and Beijing not to rush into signing the “phase one” deal, which President Donald Trump has announced will be signed next week.

IT’S TUESDAY, JAN. 7! Welcome to Morning Trade, where your host can’t really imagine the possibility of turning 117 some day. Any trade tips or news out there this week? Let me know: mcassella@politico.com or @mmcassella.

Driving the Day

DIGITAL SERVICES TAX IN THE SPOTLIGHT: Dozens of industry representatives from the technology, apparel, wine and other sectors will weigh in today on the Trump administration’s proposed retaliatory tariffs on French products.

The hearing, which is hosted by the Office of the U.S. Trade Representative and is being held at the U.S. International Trade Commission, comes as the Trump administration is weighing whether to slap 100 percent tariffs on up to $2.4 billion worth of French goods — a list that includes Champagne, Roquefort cheese and Le Creuset baking dishes. U.S. Trade Representative Robert Lighthizer has threatened those duties to retaliate against France’s digital services tax, which his agency has declared is “unreasonable or discriminatory and burdens or restricts U.S. commerce.”

Meanwhile in Europe: EU Trade Commissioner Phil Hogan will meet French Economy Minister Bruno Le Maire this morning to discuss an action plan for possible U.S. trade sanctions. Hogan is also scheduled to visit the U.S. next week to meet Lighthizer.

Le Maire vowed on Monday to “fight back” against any American retaliation over the French digital tax, while calling on the U.S. to instead work toward a compromise through the Organization for Economic Cooperation and Development. Le Maire’s warning follows a letter he sent Lighthizer last week saying America’s tariff threat is “highly disproportionate” and would “deeply and durably” damage the relationship between the two countries.

Pushing for an OECD approach: Since last year, the OECD has been working on a set of global rules regarding how to tax international tech giants. The group hopes to reach an initial agreement in early 2020.

Tech companies themselves would prefer this route rather than having to deal with a patchwork of different fiscal regimes, but renewed tariff fights between the U.S. and France could spoil the yearslong negotiations.

“We need to make clear that undermining multilateral efforts at global tax reform with unilateral, discriminatory taxes will have consequences,” said Matt Schruers, president of the Computer & Communications Industry Association. He asked USTR for “careful consideration of remedies” in this case.

A LEGISLATIVE RESPONSE TO A DIGITAL TAX? The dispute is only likely to grow as other European countries prepare to follow France’s lead in imposing the digital tax, which is aimed at technology giants like Google, Facebook and Amazon.

Congress could possibly enact a retaliatory tax on large foreign firms mirroring the digital tax, argues Gary Hufbauer, a senior fellow with the Peterson Institute for International Economics.

In a new paper released this morning, Hufbauer says such legislation “would forcefully express bipartisan displeasure with foreign digital taxes imposed in contravention of existing rules” — and would be better than blanket tariffs.

“Without a forceful congressional response, U.S. tech firms, their shareholders, and the U.S. Treasury will be taken wholesale to tax cleaners abroad,” he writes.

USMCA IN THE SENATE: The Senate Finance Committee is set to discuss the new North American trade agreement beginning at 9:30 a.m. today. Senate Finance Chairman Chuck Grassley has made clear he wants to move the revised deal, H.R. 5430, as quickly as possible, and it’s widely expected to advance through committee today with broad support.

How quickly the pact might see a vote from the full Senate could depend on when impeachment proceedings might begin in the chamber. White House trade adviser Peter Navarro was bullish this weekend, saying on Fox News’ “Sunday Morning Futures” that he could see it passing as early as Friday.

Want more information on what’s in the USMCA implementing legislation? Legislative Compass Pros can check out our Pro Bill Analysis of H.R. 5430, published last month.

New Finance member on the roster: ICYMI before the holiday break, Sen. Ben Sasse (R-Neb.) has joined the Senate Finance Committee, taking the seat from former Sen. Johnny Isakson (R-Ga.), who retired at the end of 2019.

Sasse is an ardent free trader known for sharp statements on trade issues, at times opposing tariffs and supporting efforts to reassert Congress’ power over tariffs. “Our farmers and ranchers depend on trade to feed the world, and now Nebraska has a seat at the Senate’s most powerful trade committee,” Sasse said when his new appointment was announced.

MARKING YOUR CALENDARS, 2020 EDITION: With fresh calendars on our desks, we’re looking ahead to key dates for 2020 in the trade world.

Throughout the year, there are several opportunities for Trump and Chinese President Xi Jinping to meet, including at the United Nations General Assembly in New York in September or the Asia Pacific Economic Cooperation summit in Malaysia two months later. Pro Trade’s Doug Palmer has the full rundown on key dates for you to clip and save here.

About that signing ceremony: The Beijing-based Global Times, a tabloid published by Chinese Communist Party mouthpiece People’s Daily, argued Monday that the two sides should not rush to conclude phase one deal, despite Trump’s announcement that it would be signed next week.

“Rushing through the process to make short-term political points for a partisan audience would be not only short-sighted — it would also be dangerous to the future of the trade negotiations to address the remaining issues in the dispute, as well as the broad bilateral relationship,” the Times wrote. Read the piece here.

CUTLER: ONLY 18 MONTHS LEFT IN TPA: The bitter 2015 fight over giving former President Barack Obama trade promotion authority doesn’t seem that long ago. But that six-year extension expires in just 18 months, requiring Congress to begin thinking about what, if any, changes it wants to make to the legislation, said former U.S. trade negotiator Wendy Cutler.

“I think it’s going to be an interesting debate,” after recent developments that raise questions over the value of the legislation for U.S. trading partners and the White House, said Cutler, who is now vice president at the Asia Society Policy Institute.

TPA gives other countries some reassurance that any agreement they reached won’t be amended by Congress. But the U.S.-Mexico-Canada Agreement has been substantially changed as a result of negotiations between House Democrats and USTR after the original deal was signed on Nov. 30, 2018, she noted.

TPA also provides protection against a filibuster threat in the Senate. Sen. Pat Toomey (R-Pa.) argues that should be stripped because the administration hasn’t followed proper procedures for submitting the USMCA for a vote. But that is a minority view among Republicans, and Toomey himself acknowledges there is probably enough support to kill any filibuster attempt.

REGIONAL DEAL SIGNING POSSIBLE: An agreement in the long-running talks on the Regional Comprehensive Economic Partnership involving the 10 countries of ASEAN, China, Japan, South Korea, Australia and New Zealand could be signed this year, Cutler said.

India was also part of the RCEP talks, but it dropped out in November. “The other 15 countries basically announced [they have reached a] conclusion, but they also said they would welcome India back in,” Cutler said. “They also said they want to sign the deal in 2020.”

International Overnight

— The Federal Communications Commission is inviting the public to comment on the agency’s vote late last year to ban U.S. rural wireless providers from using a government fund to buy from Chinese companies ZTE and Huawei. More from the South China Morning Post.

— The New Yorker dives into the future of America’s contest with China at a time when the bilateral relationship is more unstable than any point in decades. Read it here.

— The American wine industry is bracing for steep new tariffs that are meant to impose pain on the European Union but could be catastrophic for their own businesses, The New York Times reports.

— Sen. Elizabeth Warren’s support of USMCA is facing criticism from climate advocates, Huffpost reports.

— British Prime Minister Boris Johnson says that the U.K. will negotiate simultaneous trade agreements with the EU and U.S., the Daily Mail reports.

THAT'S ALL FOR MORNING TRADE! See you again soon! In the meantime, drop the team a line: abehsudi@politico.com; mcassella@politico.com; dpalmer@politico.com; srodriguez@politico.com; jyearwood@politico.com and pjoshi@politico.com. Follow us @POLITICOPro and @Morning_Trade.

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