|
||
|
TWN
Info Service on WTO and Trade Issues (Jun26/14) Trade:
Trump's threat over DST deepens trust deficit in global trade Geneva, 29 Jun (D. Ravi Kanth) -- United States President Donald Trump on 26 June threatened to impose a 100% tariff on countries that impose a digital services tax (DST) on American companies, irrespective of any agreed trade deals - a development that might be hailed by the leading US digital giants Google, Amazon, Facebook, Apple and Microsoft, said analysts familiar with the development. Writing in his Truth Social media platform on 26 June, President Trump said: "Numerous European Countries have been discussing the imminent implementation of a Digital Services Tax on American Companies. Some of these Countries are close to actually doing this. Please let this statement serve to represent that any Country that imposes such a Tax will immediately be met with a 100% TARIFF on any and all Goods sent to the United States of America. This TARIFF will supersede Trade Deals made with the Country, whether implemented, signed, or not. Additionally, the 100% TARIFF will be immediately imposed, if they proceed." Later, a White House official said the US would impose the 100% tariff under Section 301 of the US Trade Act of 1974, which has been found to be inconsistent with the World Trade Organization's rules. While the American digital giants may hail this decision, it severely undermines trust in any trade agreements concluded by countries with the US, said a digital trade policy expert, who preferred not to be quoted. "This should also be seen as a direct attack on national sovereignty of countries, as taxation is a sovereign right of governments if it does not discriminate against nationalities," the expert said. Interestingly, the DST is not being levied against any one country (in this case, the US) but applies to large multinational digital companies that exceed certain global and domestic revenue thresholds. Many of these companies are American, like Google, Amazon, Apple, Meta, Microsoft, Uber, Airbnb, and Netflix. However, many are also non-US companies, such as Spotify (Sweden), Tencent (China), Alibaba (China), Rakuten (Japan), and Just Eat Takeaway (the Netherlands). Almost half of all European countries have either announced, proposed, or are implementing DST with varying structures. But the DST is not just being imposed by European countries. More than 20 non-EU countries have also imposed a digital services tax or some variation of it applied to large multinational digital companies. The need for a digital services tax on multinational digital giants is urgent and necessary, not only to address the growing concentration of wealth but also to provide a level playing field for much smaller infant digital firms that compete with these giants. Given the rapid advancement of artificial intelligence (AI), the profits of these digital giants are further swelling while the competitiveness of national infant digital firms is being further reduced. "One of the arguments put forward for continuation of the Moratorium on Customs Duties on Electronic Transmissions has been the right of countries to impose internal taxes on the operations of multinational digital firms; however, such threats of retaliatory tariffs by President Trump should force countries to rethink any continuation of the Moratorium," the digital trade expert said. The way to counter the threats of retaliatory tariffs, which undermine countries' sovereign tax rights, is to have regional agreements for imposing such digital taxes so that no one country is penalized. For the EU, the DST was only an interim measure until agreement could be reached at the Organization for Economic Cooperation and Development (OECD) level, under Pillar One. However, no agreement was reached to include digital services tax under any binding treaty in the OECD. Under the proposed United Nations Framework Convention on International Tax Cooperation, there are discussions underway on source-based taxation - i.e., where consumers and users are located - but there has been no agreement reached. EU TO RETALIATE In response to President Trump's threat of a 100% tariff over the DST, the EU said it would retaliate if new tariffs were imposed against non-discriminatory taxes. "Unilateral measures targeting such legitimate policies are unjustified ... If pursued, the EU will respond swiftly and decisively to defend its rights and regulatory autonomy," said a European Commission spokesperson, according to a report in the Financial Times on 26 June. If strong lobbying at the international level is preventing such tax agreements, it is time to have digital tax agreements at the regional level to avoid a race to the bottom and giving away sovereign taxing rights, said a digital trade expert. As of now, no binding agreement on digital services tax exists in any of the major African Regional Economic Communities (RECs), or at the African Union level. Neither ASEAN nor Latin America has any binding agreement on applying DSTs. However, such agreements are urgently needed. The digital giants are growing bigger every day with the advancement of AI, and their political grasp is tightening, especially in the US. Apart from revisiting their trade policies, like export market diversification, countries need to protect their domestic markets and build their digital competitiveness with stronger digital taxing rights, according to the digital trade expert. Countries should also revisit their decisions about entering into free trade agreements (FTAs) with the US and giving up much of their policy space, as such FTAs are the first casualty with respect to any sovereign decision taken by the country. +
|
||
