French wine avoids US tariffs in digital services tax dispute

French wine has been left out of a list of goods due to be the subject of US tariffs next year as part of an ongoing dispute relating to France’s digital services tax.

In a notice filed on 10 July, the US government released a list of goods worth US$1.3 billion which will be subject to 25% tariffs from 6 January 2021.

Back in December 2019, the US voiced its opposition to France’s digital services tax, and proposed tariffs of up to 100% on US$2.4 billion worth of French goods, including sparkling wine.

France approved a 3% digital levy last year, a tax which has been dubbed GAFA, an acronym for the companies most affected: Google, Apple, Facebook and Amazon.

The US states that the tax would collect US$450m in 2020 from digital companies with annual revenues of around US$15bn, with over US$500m expected to be collected next year.

In January this year, the US and French governments agreed a tariff truce for a year. France agreed to suspend collection of the tax, while the US said it would halt tariffs. This was to allow for talks, overseen by the Organisation for Economic Co-operation and Development (OECD), to develop a new global tax framework for major digital tech firms.

It has been reported that the US withdrew from these talks in June, subsequently launching investigations into other countries that have adopted, or are considering adopting, a digital services tax. These included Austria, Brazil, the Czech Republic, the European Union, India, Indonesia, Italy, Spain, Turkey, and the United Kingdom.

Fortunately for the French wine industry, a hearing held on 7 and 8 January 2020 appears to have convinced government representatives to remove wine from the list.

The hearing, which saw 37 witnesses provide testimonies, was attended by multiple representatives from the US wine trade, including Jeff Zacharia, director of the National Association of Wine Retailers and president of Zachys Wine & Liquor Store and Zachys Wine Auctions.

Zacharia, said the existing 25% tariffs imposed on European wine as part of a separate aviation dispute, had already caused him to lay off four members of staff.

He said it would take “at least a decade” for the domestic wine industry to replace the volume of wines imported from France.

“The bottom line is that the proposed tariff on wines will result in a devastating revenue loss for our members. Many of the NAWR anticipate that they’ll have to lay off up to 25 % of their workforce due to declines in sales revenue from tariffs on sparkling wines from France and the other tariffs in place, leading to loss of thousands of jobs,” he said.

“I’d also like to emphasize that imposing tariffs on French wines will hurt US wine retailers much more than it will hurt French wine industry.”

The US has already imposed tariffs on US$7.5 billion worth of EU goods – including wine, spirits and liqueurs – as result of a separate dispute regarding subsidies given to Airbus over US rival Boeing. The country first imposed 25% tariffs on drinks including Scotch whisky and wine (not over 14% ABV) made in France, Germany, Spain and the UK in October 2019.

In June this year it initiated another tariff review on imported goods, which could see it consider tariffs of up to 100% on beer, gin and vodka made in France, Germany, Spain, and the UK.