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USTR recommends tariff on fashion imports in reply to digital service tax on US companies


USTR recommends tariff on fashion imports in reply to digital service tax on US companiesIn January this, year, USTR announced plans to indefinitely suspend Section 301 tariffs on certain luxury goods from France. This was in response to the discriminatory digital service tax levied France on certain US digital companies. A report by the Fashion Law terms this tax as being inconsistent with the principles of international taxation and burden US companies.

Tariffs on fashion to damage exports, raise tensions

Fashion is one of the goods that USTR plans to tax in response to the digital service tax levied by countries like UK, India, Austria, Italy, Spain, etc. In UK, USTR plans to add upto 25 per cent tariffs on fragrances, different types of makeup, skincare products, ‘women’s or girls’ dresses, knitted or crocheted, of synthetic fibers, women’s’ and men’s’ overcoats, and different types of footwear, etc. The government agency plans to tax handbags, footwear, women’s or girls’ suits, jackets, blazers and men’s or boy’s track suits.

The proposed tariffs have raised concerns amongst various fashion experts. Helen Brocklebank, CEO, Walpole, believes, they have a tremendouslyUSTR recommends tariff on fashion imports in reply to digital service tax on US damaging impact on businesses’ ability to export to the US while Amie Ahanchian, Donald Hok, Philippe Stepbanny and Elizabeth opine, the proposed tariffs may increase trade tensions amongst countries besides increasing the cost of business for many companies.

Call for duty drawback programs

In a Bloomberg Tax article, these experts urge for duties to be made eligible for duty drawback under two conditions: first, these goods being subsequently re-exported and second, being incorporated as products manufactured in the US. Duty drawback rules are becoming increasingly popular as they enable companies to recover 99 per cent of the duties originally paid on the imported merchandise when exported, say Ahanchian, Hok, Stephanny, and Shingler.

Another popular duty reduction program that can be used includes the First Sale for Export (FSFE) duty reduction program. However, to use this rule, the US importer needs to prove the marked exports destined for the US market, say Ahanchian, Hok, Stephanny, and Shingler. This program has often been used by retail and apparel importers facing steep duties. It is now becoming popular in other industries too.

The American government aims to resolve international taxation related disputes by building a consensus among members of the Organization for Economic Co-operation and Development, say Husch Blackwell LLP attorneys, Camron Greer and Turner Kim. Katherine Tai, US Trade Representative, reaffirms US’ commitment to resolving concerns related to digital services taxes through an international consensus through the OECD process. Until it reaches such a consensus, USTR aims to maintain its options under the Section 301 process, including imposition of tariffs.