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U.S. and France Race to Conclude Digital Tax Talks as Tariff Threat Looms

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WASHINGTON — The United States and France are racing to reach a compromise in a digital tax dispute that could result in hefty American tariffs on French wine, cheese, handbags, cookware and more.

Speaking in Paris on Tuesday, Bruno Le Maire, the French finance minister, said that he had spoken on Monday with Steven Mnuchin, the Treasury secretary, about a new French tax on Facebook, Google and other American technology giants. The tax has angered the Trump administration and prompted the United States to propose a range of retaliatory levies on French goods.

Mr. Le Maire said he and Mr. Mnuchin would redouble their efforts to find a compromise before their meeting this month on the sidelines of the World Economic Forum in Davos, where they will be joined by United States trade representative, Robert Lighthizer.

“I made it clear to Steven Mnuchin that as long as we are discussing, as long as we are negotiating, there could not be any American sanctions,” Mr. Le Maire said, according to an English translation of his comments provided by the French Embassy.

Efforts to reach a resolution came as representatives from a variety of industries that could be hit by tariffs gathered in Washington to argue against the administration’s plan. Executives from industries including handbags, cookware, porcelain, champagne and cheese described the prospect of American tariffs of up to 100 percent on French imports as a threat for their businesses and begged to be exempt.

“How can you just gut my family business?” Mary Taylor, the founder of a company that brings European wines to the American market, asked a panel of government officials in a hearing room south of the Capitol. “I’ve read about farmer subsidies. Will my family be subsidized?”

“Never could I imagine my business would be threatened like this from the federal government,” Ms. Taylor added. “What do digital services have to do with European wine? Nothing.”

The Trump administration has turned to tariffs as a source of leverage in trade negotiations and other diplomatic matters. The threat of painful levies has coaxed China, Mexico, Canada and other countries into signing trade agreements with the United States, but the Trump administration has yet to make much progress negotiating new trade terms with Europe.

Instead, the trans-Atlantic trade relationship has become increasingly strained, with Mr. Trump criticizing the European Union for running a trade surplus with the United States and accusing it of being “worse than China” in its trade practices.

In November, the Trump administration stepped away from a major escalation in relations as it quietly allowed a deadline to impose tariffs on European cars to expire. But it has moved ahead with other tariffs on European products — some in response to a dispute over aircraft at the World Trade Organization, and others in response to France’s new tax on digital services.

Like other European countries, France has long been frustrated that platforms like Google, Facebook and Amazon have large digital presences and conduct a lot of commerce in their country, but pay few taxes because they have little physical presence there. In July, France passed into law a 3 percent tax on the revenue some companies earn from providing digital services to French users.

American officials have called the tax “discriminatory” and “unreasonable” and detailed a plan to retaliate by imposing tariffs on porcelain, soap, handbags, wine, yogurt, lipstick and other French products, though they have not specified the rate or total dollar value of the tariffs that might be imposed.

A spokesman for the United States trade representative said the administration was now considering duties of up to 100 percent on certain French products, as well as fees or restrictions on French services, commensurate with the level of harm to the American economy that results from the tax. A Treasury spokesman declined to comment.

International negotiators have been trying to head off such conflicts by developing a broader framework for digital taxes. Negotiations are continuing at the Organization for Economic Cooperation and Development, but the slow pace of the talks has frustrated European officials.

On Tuesday, Mr. Le Maire met with Phil Hogan, the new European trade commissioner, who will travel to the United States next week to discuss how to respond to potential American tariffs. If no deal is struck at the O.E.C.D. and American tariffs are imposed, France has vowed to retaliate with its own levies, as well as call on the European Union to move ahead with a broader European project for digital taxation.

Mr. Le Maire said that if the United States imposed tariffs during the negotiating period it would effectively end the talks. He added that other European countries were in the process of establishing similar taxes, with about 15 countries around the world planning to impose their own national digital tax by June.

“If the Americans start to hit France with sanctions because it has introduced national digital taxes, it will have to go tomorrow to also hit Italy, Austria, Great Britain,” Mr. Le Maire said. “We will enter a commercial conflict between the United States and Europe.”

Mr. Trump and many of his supporters have argued that tariffs on foreign goods do not have much effect on American companies, and have largely dismissed complaints like those shared at Tuesday’s hearing. Other officials have acknowledged that the tariffs impose some costs on American businesses, but have argued the price is worth it to secure other changes.

The businesses that are paying the levies have protested, and loudly.

Ms. Taylor, the wine expert, said she had woken up at 2 a.m. that day to get to Washington, and insisted on testifying before the panel disbanded early, before an afternoon snowstorm. Her passionate testimony was followed by cheers and applause from dozens of wine merchants in the audience of a normally staid hearing room.

Other executives complained Tuesday that the tariffs would cause them to put the brakes on hiring or expansion plans, and could force their businesses to close altogether.

Faye Gooding, the recently retired chief executive of Le Creuset of America, called the tariff “an existential threat” to the company’s existence in South Carolina.

Le Creuset’s candy-colored Dutch ovens — which feature prominently on many American wedding registries — are manufactured in France. But the company employs more people in warehouses and retail locations in the United States than in any other country, Ms. Gooding said. A tariff of up to 100 percent on the company’s premium cookware could prove catastrophic for its about 900 American employees, including around 300 in South Carolina, she said.

Benjamin Aneff, the managing partner of Tribeca Wine Merchants, called the prospect of a tax on French wine and champagne the “greatest threat to the industry since Prohibition.” Even if wines originate in France, they are typically sold in the United States by American distributors and retailers, businesses that would be hurt by higher taxes, he said.

Nate Herman, the vice president of international trade at the American Apparel & Footwear Association, which represents makers of handbags that would be hit by the tariffs, said that his members had been “baffled” at becoming embroiled in a digital sales tax dispute.

The industry agrees with the government’s objective of eliminating the digital services tax, he said. “We just don’t agree with the U.S. government’s proposal to accomplish that goal — imposing taxes on handbags.”

Liz Alderman contributed reporting from Paris.

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