PARIS — French luxury goods companies’ stocks took a hit on Tuesday after the U.S. government said it may enforce duties of up to 100 percent on $2.4 billion worth of imports from France — including handbags, cosmetics, wine and cheese — in retaliation for a French tax on U.S. digital giants.
LVMH Moët Hennessy Louis Vuitton shares had sunk by 1.4 percent, Kering’s by 1.9 percent and Hermès International’s by 2.5 percent at the close of the bourse on Tuesday. The CAC 40 exchange, meanwhile, ended down 1 percent.
Spokespeople from LVMH, Kering and Hermès had no comment on the possible tax, which may go into effect sometime after mid-January 2020.
Speaking on French radio on Tuesday morning, France’s Finance Minister Bruno Le Maire called U.S.’s proposed sanction “unacceptable.”
“The French tax on digital activities aims to reinstall fiscal justice,” he said. “It targets American companies, but also Chinese and European companies. It’s not discriminatory.”
Le Maire criticized the U.S. position, claiming it went against the commitment that was made during the G7 Summit in France in August.
“This isn’t the behavior that is expected of the United States toward its main allies, France and Europe,” he continued. “We have contacted the European Commission to make sure that if there were to be more American sanctions, there would be an European reaction, a strong retaliation.”
During a mid-day press briefing on Tuesday, a Commission spokesman said: “In this, as in all other trade-related matters, the European Union will act and react as one and it will remain united. We are coordinating closely with French authorities on next steps.”
The spokesman also said the Commission believes trade disputes are best settled in the World Trade Organization.
The U.S. government then launched an investigation into whether the tax presented a threat to national security. President Trump in July threatened tariffs on French products, but a 90-day agreement was reached during which time American retaliation was put on hold and international negotiations took place on digital taxation.
On Monday, the U.S. Trade Representative said it had completed the first part of its investigation under section 301 of the Trade Act of 1974. It explained in a statement that the office had “concluded that France’s digital services tax discriminates against U.S. companies, is inconsistent with prevailing principles of international tax policy and is unusually burdensome for affected U.S. companies, such as Google, Apple, Facebook and Amazon.”
“USTR’s decision today sends a clear signal that the United States will take action against digital tax regimes that discriminate or otherwise impose undue burdens on U.S. companies,” said U.S. trade representative Robert Lighthizer, adding the office is investigating the digital services taxes of Austria, Italy and Turkey, as well.
“The French digital services tax is unreasonable, protectionist and discriminatory,” Senate Finance Committee chairman Chuck Grassley and ranking member Ron Wyden said jointly in a statement Monday night. “Taking premature action that will adversely and disproportionately affect another OECD member state is contrary to the organization’s goals and shouldn’t stand. We welcome this step from USTR on behalf of U.S. companies being unfairly targeted and harmed by the French tax. We encourage other member states considering similar actions to work within the OECD framework toward a comprehensive solution.”
Public comments on the proposed list of duties will be collected by the trade agency through Jan. 6 and post-hearing rebuttal comments by Jan. 14. No date was given for when the 100 percent duties might go into effect.
While Hermès and Kering each generated 18 percent of their annual sales last year in the Americas region, Kering produces the bulk of its accessories in Italy, for Italian labels such as Gucci and Bottega Veneta, as well as for Saint Laurent. Hermès makes all of its handbags in France, where it counts 42 production sites, a number that has been steadily increasing.
LVMH rang up 24 percent of its sales in the U.S. in 2018, a figure set to grow when its $16.2 billion acquisition of Tiffany & Co. is finalized next year. The group’s star brand Louis Vuitton recently opened a workshop in Texas, drawing Trump to its inauguration for photos with chairman and chief executive officer Bernard Arnault. LVMH also has two workshops in California to serve American clients with Made in the U.S. labels.