Washington Insider-- Friday

New Trade Fight Over Taxes on Digital Commerce

Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.

USTR Lighthizer Fully Expects China to Meet Phase One Commitments

U.S. Trade Representative Robert Lighthizer spent hours on the Hill Wednesday, testifying on the trade agenda to panels in both the House and Senate. But his message on the China Phase One agreement was unchanged – China will live up to terms of the deal.

He reiterated several times that he expects China will live up to terms of the deal. Lighthizer said that in “every contact I've had with the Chinese they have reaffirmed their commitment to living up to the agreement.” He also again related the view that China’s buys of soybeans will be backloaded this year. But he also expressed disappointment that some think the deal is “just soybean sales contract when it really has a lot of very, very serious parts to it.” As we have repeatedly emphasized, Lighthizer made sure to note the key changes that China has agreed to as part of the deal and the fact that it is an “an enforceable agreement.”

China has bought around $1 billion in U.S. cotton which puts them ahead of where they were in 2017, the base year that was used as the starting point for China’s purchase commitments. Lighthizer said the China commitment on cotton is “substantially north” of that $1 billion mark, but he did not say what that level is. Recall the specific purchase commitments were part of a confidential part of the accord that neither side has made public. Current purchases stand at around $10 billion, Lighthizer noted.

Lighthizer made clear that China purchases so far are still behind the levels needed to meet the commitments, particularly on energy. However, he predicted that China would “soon” be making sizable purchases of U.S. ethanol.

After all of that testimony Wednesday, President Donald Trump seemed to undercut Lighthizer on Thursday with a tweet. "It was not Ambassador Lighthizer’s fault (yesterday in Committee) in that perhaps I didn’t make myself clear, but the U.S. certainly does maintain a policy option, under various conditions, of a complete decoupling from China. Thank you!"


Senate Ag Panel Sets Markup On Grain Standards Reauthorization, Hearing On Carbon Capture Bill

The Senate Ag Committee has set a business meeting June 24 to markup the United States Grain Standards Reauthorization Act of 2020, one of the few pieces of ag-related legislation that are expected to be acted on this year.

The panel held a hearing on the issue last year and it will be interesting to see if changes suggested at that session have been incorporated into the legislation the panel will markup next week. The measure was last reauthorized in 2015.

The panel will then shift to a hearing on the Growing Climate Solutions Act of 2020 (S 3894). American Farm Bureau President Zippy Duvall, National Farmers Union President Rob Larew, Land O’Lakes official Jason Weller and Indiana farmer Brent Bible – also listed as an adviser to the Environmental Defense Fund – are scheduled to testify.

Washington Insider: New Trade Fight Over Taxes on Digital Commerce

Bloomberg says this week that the U.S. has decided to withdraw from international efforts to harmonize global tax rules for digital companies and that the decision “risks triggering a new trade war.”

The move came after the U.S. and an international group failed to agree on the best way to increase tax revenue from digital companies such as Facebook Inc. and Alphabet Inc.’s Google. These companies have long been targets for cash-strapped governments who are interested in tapping their deep pockets. The U.S. says digital taxes unfairly discriminate against American firms and has threatened retaliatory tariffs if they try. Such a move “could exacerbate the worst global economic downturn since the Great Depression,” Bloomberg says.

In July 2019, France became the first country to impose a digital tax on U.S. firms after wider efforts by the European Union to develop a harmonized approach failed. The French 3% levy was applied to companies with at least 750 million euros in global revenue and digital sales of 25 million euros in France.

Of about 30 businesses affected, most are American, but the list also includes Chinese, German, British and even French firms.

The U.S. and France “came close to triggering a transatlantic trade war” in January as the EU said it could retaliate if the U.S. went ahead with planned tariffs on roughly $2.4 billion in signature French products, including wine, cheese, handbags and makeup.

The two countries agreed on a truce whereby the U.S. would back off from tariffs and France would delay collection of its digital tax to the end of 2020 to allow for renewed efforts to reach a multilateral solution.

Since then, the U.S. has launched investigations into the digital taxes proposed or enacted by 10 nations and the EU, citing Section 301 of the U.S. Trade Act of 1974, which allows it to retaliate for trade practices it deems unfair – the same tool used to justify U.S. tariffs on Chinese goods due to alleged theft of intellectual property.

U.S. Trade Representative Robert Lighthizer says countries that have either adopted or are considering digital taxes include Austria, Brazil, the Czech Republic, France, India, Indonesia, Italy, Spain, Turkey and the UK.

Now, governments are increasingly focusing on digital taxes as a way to raise funds to help pandemic-stricken economies.

Stay-at-home policies have played to the strengths of companies such as Amazon.com Inc. and Netflix Inc., along with other platforms that compose the nearly $26 trillion global e-commerce marketplace.

France has said it would drop its tax if the U.S. and other countries agree to a global effort for a uniform approach under the stewardship of the Paris-based Organization for Economic Cooperation and Development (OECD).

However, this month U.S. Treasury Secretary Steven Mnuchin told the EU that the U.S. will no longer participate in the OECD’s digital tax talks after they failed to reach agreement on the best way to tax revenues of U.S. technology companies.

The U.S. move is opposed by its trading partners. For example, French Finance Minister Bruno Le Maire called the U.S. withdrawal from the international talks “a provocation” and indicated his country will impose a version of the levy this year. “Whatever happens, we will apply a tax on digital giants in 2020 because it is a question of justice,” Le Maire said.

Lighthizer told lawmakers June 17 that the U.S. would respond to any “unilateral” digital services taxes with retaliatory tariffs” but left room for the possibility of a deal. He called for an “international regime” that not only focuses firm size one based on a general agreement about how we’re going to tax people internationally, he said. “So I think there is clearly room for a negotiated settlement.”

Bloomberg notes that transatlantic tax wars aren’t new and that Apple Inc. was slapped with a 13 billion-euro bill for back taxes by the European Commission three years ago. The U.S. Treasury Department tried and failed to sway the EU’s investigation which alleged that the company got an illegal subsidy.

The Commission has also probed Google’s Irish tax arrangements and ordered Amazon to pay 250 million euros in back taxes to Luxembourg. Other U.S. companies, including non-technology firms such as Starbucks Corp. and Nike Inc., have also been targeted.

The EU insists that the common thread isn’t that they’re American but that they’ve used complex legal structures and intellectual-property licensing to limit tax payments.

Bloomberg also notes that taxes are only part of a bigger EU backlash against big tech. Internet firms have been put on notice over issues ranging from privacy to market dominance – and they’re fighting back with lobbying and court cases. In 2019, Google agreed to pay 965 million euros to settle two French tax probes. Apple and Amazon are contesting their respective European tax decisions in EU courts – and a legal victory could halt that part of the bloc’s crusade. Lawmakers are on the lookout for companies that might consider changing their tax structures or moving income outside of the EU to stay ahead of the curve.

So, we will see. Business interests are worried that new international fights will weaken efforts to offset impacts of the coronavirus — and that is certainly a valid concern. The “international digital tax” effort is yet another threat that could trigger pushbacks of many kinds. It should be watched closely as new and more threatening policy fights are debated, Washington Insider believes.

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