It was Google versus Veuve Clicquot at the U.S. International Trade Commission building in Washington, D.C., earlier this week, as U.S. Trade Representative Robert Lighthizer held two days of hearings over whether the government should impose 100 percent tariffs on French sparkling wines, handbags, cookware and other goods. On one panel, lobbyists for tech companies argued that the tariffs were necessary to punish France for its digital service tax, which the Trump administration believes unfairly discriminates against American companies like Facebook, Amazon and Google.
On multiple other panels, nearly two dozen members of the U.S. wine industry argued that the tariffs were mis-targeted and would end up punishing thousands of American workers at importers, distributors, restaurants and retailers across the country.
"The domino effect of unintended consequences from the proposed tariffs would be catastrophic for tens of thousands of American businesses," Ben Aneff, managing director of Tribeca Wine Merchants, a New York retailer, told Lighthizer and other officials at the hearing. He said those tariffs, as well as those proposed in a separate trade fight over airplane manufacturers, posed "the greatest threat to the wine industry since Prohibition."
The sparkling wine spat is completely separate from the airplane battle. In that dispute, the Trump administration imposed 25 percent tariffs in October on most wines from France, Spain and Germany in retaliation for government subsidies given to Airbus. The European Union and the U.S. have yet to reach an agreement in that battle, and the Office of the U.S. Trade Representative (USTR) is considering raising the tariffs to 100 percent and extending them to all E.U. wines. The USTR is accepting comments on the proposal through Jan. 13.
The sparkling dispute stems from France's digital services tax, which imposes a 3 percent digital services tax on firms with more €750 million in global revenue, and €25 million in revenue in France. The Trump Administration argues the tax unfairly targets American Internet companies, while sparing French firms. USTR outlined its findings in a report released in early December, and also announced plans to impose 100 percent retaliatory duties on as much as $2.4 billion worth of French goods, including all sparkling wines. The French government argues that big international tech firms are profiting off of French consumers but not paying sufficient taxes.
While the big tech firms skipped the hearings, their lobbyists argued the tariffs were painful but necessary. The Computer and Communications Industry Association (CCIA), which represents Facebook, Amazon and Google, urged the USTR to pass the tariffs in order to warn other nations who are considering similar taxes. "USTR [should] use remedial tools at its disposal to deter France and to send a strong message to other countries who are finalizing or have proposed a similar national digital tax," Rachael Stelly, policy counsel at the CCIA, testified.
Sam Rizzo, policy director at the Information Technology Industry Council, echoed that. "Today's hearing … is about more than the French digital services tax," he said. "It is about preventing the wide-scale application of targeted, unilateral taxes, which stand to undermine a functioning international tax system and compromise the predictability it has afforded to companies to conduct business globally."
That was little comfort to the wine companies who testified, most of whom operate on much smaller profit margins than Facebook. "These tariffs from the Airbus dispute are already having a negative impact on wine retailers across the country. I have already laid off four employees," said Jeff Zacharia, of retailer Zachy's. He was testifying on behalf of the National Association of Wine Retailers (NAWR). "Imposing more tariffs on wines from France because of the France digital service tax will completely devastate our members. I'm sure that if these extra tariffs go into effect I will lay off more employees.
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"Many of the NAWR [members] anticipate that they'll have to lay off up to 25 percent 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 continued. "Retaliation against France should target French digital service companies and other French service industries instead of wine imports."
And the tariffs would impact companies big and small, emphasized Barley Stuart, executive vice president of Southern Glazer's Wine & Spirits and past chairman of the Wine and Spirits Wholesalers of America (WSWA). "Over 300 alcohol distributor jobs could be lost because of higher prices resulting from tariffs, including all firms in the beverage alcohol industry," he testified, citing a study by the WSWA. "This would lead to a total of over 17,000 lost jobs and $767 million in lost wages. On top of this, the total cost to the American economy could be over $2.1 billion."
Several panelists also pointed to the harm it would do to consumers, who would suffer higher prices and reduced choice. "Since retaliatory tariffs are in effect taxes, imposing tariffs on French sparkling wine and Champagne will have the unintended consequence of harming American consumers through market retail price increases," said Stuart.
For many of the witnesses, they feel they are in a fight for their companies' existence. "We find ourselves suddenly underwater," said Mary Taylor, owner of small import firm Mary Taylor Wines. "Should tariffs reach 100 percent as currently proposed, I will surely have to give up my young business and find another line of work or depend on welfare. My question to you is: How can you just gut my family business?"
Tell the Office of the United States Trade Representative what you think of the proposed tariffs. The USTR is accepting public comments on the sparkling wine tariffs through Jan. 14. You can file your comment at www.regulations.gov.
