After a months-long investigation into the U.K.’s digital services tax (DST), the Office of the United States Trade Representative (USTR) has determined that the action unfairly penalizes American tech companies. Now, the agency and is hitting back with proposed retaliatory tariffs on the country’s exports—including fashion items.
Implemented on July 22, the U.K.’s DST places a 2 percent tax on the revenues of search engines, social media platforms and online marketplaces whose revenue exceeds 500 million GBP ($686 million), with U.K.-specific digital services revenues totaling more than 25 million GBP ($34.3 billion). Before the measure was implemented, the USTR began an investigation, under Section 302 of the Trade Act, into whether the tax discriminates against U.S. enterprises and places a particularly heavy burden on technology companies because of their commercial success.
Despite initiating a consultation with the U.K.’s government in December, the USTR ultimately determined on Jan. 14 that the country’s DST is “unreasonable or discriminatory and burdens or restricts U.S. commerce.”
On Friday, the agency released a proposal under Section 301—the same legislation that opened the door for former President Trump’s punitive tariffs on China beginning in March 2018—to levy duties on U.K. goods, with the support of President Biden. The USTR has proposed additional tariffs of up to 25 percent on the country’s products, with the intention of collecting duties in range with the amount that the DST is expected to amass from U.S. companies. According to the agency, initial estimates say that figure could total about $325 million per year.
Apparel and footwear in the line of fire
The broad list of items that the USTR proposes taxing includes a range of apparel and footwear items, including adults’ and childrens’ outerwear like coats and windbreakers, dresses made from silk or synthetic fibers, men’s cotton shirts, silk ties, and leather and rubber-soled shoes made for all consumer demographics. The list also contains beauty items, like perfumes, eye makeup, shampoos and bath salts, jewelry products made from silver, gold, and other precious metals and stones, and furniture made from metal, wood and other materials.
Now, the USTR is soliciting public comments from parties whose businesses could be impacted by the legislation. The agency has asked that U.S. companies provide insight into the level of burden they’ve experienced due to the DST, as well as whether levying duties on the products included in the group’s current list would cause “disproportionate economic harm to U.S. interests, including small- or medium-size businesses and consumers.” The USTR will be accepting requests to appear at its virtual hearings about the proposed measures, which will take place in in early May, through April 30. It will accept written comments from U.S. individuals and companies through May 3.
On Friday, the Information Technology Industry Council, which represents major U.S. tech firms and prominent retail marketplaces like Amazon and eBay, praised recently confirmed USTR Katherine Tai for her agency’s action against “the serious and growing threat of unilateral digital services taxes.” Jason Oxman, the trade group’s president and CEO, said that the “growing adoption of such tax measures extends globally and compromises the ability for all companies to do business across borders,” causing a “harmful fragmentation.”
“Unilateral taxes also detract from the ability of countries participating in multilateral negotiations to reach a sustainable solution,” he added, encouraging all countries engaged in or considering adopting DSTs to withdraw those measures and instead “redouble efforts to reach a successful and lasting tax policy resolution to the challenges arising from the digitalization of the global economy.”