Illustration: Luo Xuan/GT

French senate approved a digital services tax on Thursday after the bill was passed by the lower house. Digital service providers, with revenue exceeding 750 million euros ($845 million) globally and at least 25 million euros revenue generated from France, are subject to a 3 percent tax.

Right before the passing of the digital services tax, the US Trade Representative launched a Section 301 investigation of the Trade Act of 1974 into the tax bill, citing concerns that the bill could unfairly target US firms. 

In fact, a clash between the US and France is inevitable in the digital field. The primary reason is attributed to the gap between the two countries in terms of digitalization. China and the US have taken the lead in digitalization while France has fallen behind. China has fewer companies engaging in the digital related business in France than the US. Therefore, it is not surprising that the US has become a thorn in France's eye.

Another cause is the conflict of two different economic models. Anglo-Saxon countries adopt an economic model based on the market. The economic system of continental European countries is based on banking. In other words, countries such as the US and the UK rely on the functions of stock markets and venture capitals, where market competition is a highlight. Continental European countries, on the contrary, utilize a more visible hand including bank loans and regulations. The two models of economic operations are contradictory by nature.

France has planned to strike US tech giants for quite a while. Multinational tech giants such as Apple, Facebook and Amazon have been infiltrating the French market for years, squeezing the market shares of their French counterparts. For instance, Amazon's free shipping policy has incited outrage from other French e-commerce corporations. French Parliament passed a law in 2014 banning online retailers from delivering books free of charge. Amazon snubbed this law by charging their customers exactly 0.01 euros. The US' 301 investigation was mainly used against countries which are not their Western allies. This is the first time US has targeted an ally. This incident shows that the US President Donald Trump is insisting on the "American First" principle - the US must have priorities over other countries, allies or not. It is an important turning point. 

The US has been provoking trade frictions with other countries worldwide since Trump became president. Moreover, the country is suppressing tech companies from other countries through bullying and wielding sanctions. However, it found out that the US' "opponents" were not defeated or yielding in the face of bullying and sanctions. France, which has undergone US pressure for years, is encouraged. The long-planned digital services tax is very reasonable, no matter if it is from the standpoint of provisions of international organizations such as WTO and OECD or from the perspective of European regulations and French laws. The French government is expected to collect an estimated 500 million euros annually through levying the 3 percent tax, which is very limited. The move is appropriate and gentle enough. The US will be irritated but will be far from suffering lethal damage. 

French people are confident they will win this conflict, not only because the US has lost its moral high ground by waging the Section 301 investigation, but also due to the fact that France does not fear the US in trade. Even though France today is merely a medium-sized economy, the country has a complete industrial system and well-established economic structure. French people believe that, unlike the UK or Germany, their country will not lose much if a trade war with the US breaks out. Certainly, they also understand that the long-term vision requires expedited effort to digitize France for the nation to safeguard its domestic digital market.  

The author is an economics professor at the University of International Business and Economics. bizopinion@globaltimes.com.cn