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While much of the attention on 21 February might have been focused on President Trump's America First Investment Policy (preliminary discussion and text of EO here), another Executive Order also merits discussion as part of the emerging system of regulating outbound investment. In Defending American Companies and Innovators From Overseas Extortion and Unfair Fines and Penalties (February 21, 2025) the United States, through the President, announced a substantial refinement of its retaliatory structures for actions taken against overseas investments and operations of U.S. companies.
The focus is on "digital economy alone, driven by cutting-edge American technology companies." (Defending American Companies and Innovators From Overseas Extortion and Unfair Fines and Penalties §1). The challenges that these regulations targeted were described in the Executive Order's purpose (§1):
Beginning in 2019, several trading partners enacted digital services taxes (DSTs) that could cost American companies billions of dollars and that foreign government officials openly admit are designed to plunder American companies. Foreign countries have additionally adopted regulations governing digital services that are more burdensome and restrictive on United States companies than their own domestic companies. Additional foreign legal regimes limit cross-border data flows, require American streaming services to fund local productions, and charge network usage and Internet termination fees. All of these measures violate American sovereignty and offshore American jobs, limit American companies’ global competitiveness, and increase American operational costs while exposing our sensitive information to potentially hostile foreign regulators. (Ibid.)
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The characterization of the challenge and blunt: "American businesses will no longer prop up failed foreign economies through extortive fines and taxes." (Ibid.). To those ends the Executive Order developed the following structure and methodology.
1. The standard:
"where a foreign government, through its tax or regulatory structure, imposes a fine, penalty, tax, or other burden that is discriminatory, disproportionate, or designed to transfer significant funds or intellectual property from American companies to the foreign government or the foreign government’s favored domestic entities, my Administration will act, imposing tariffs and taking such other responsive actions necessary to mitigate the harm to the United States and to repair any resulting imbalance." (Ibid., § 2).
There are several moving parts in the standard. The predicate action consists of roughly four parts that may be divided this way:
(1) a foreign government (note that it may be harder to use this as a trigger where the action is indirectly tied to the government and it is not clear what a foreign government is where, for instance the action is undertaken by competing entities or occurs in a conflict zone where authority is at best murky);
(2) the action is undertaken by its tax or regulatory structure ((a) that is an ambiguous identification--broadly read it could include anything in the state apparatus the effect of the actions of which might "tax" in its colloquial or economic sense; (b) identifying the offending apparatus as a "structure" is also odd but suggests a broad reading);
(3 ) the action taken is the imposition of a fine, penalty, tax or other burden (there are substantial issues of definition here, as well as a question of who decides on the appropriate interpretation, the suggestion here are a group of officials including the USTR and the Secretaries of Commerce and Treasury); the "or other burden language" suggests a broad reading that might be drawn from BIT investment language); Section 2(a)-(d) suggests the sources of burdens--including taxes, other regulations, "any act, policy, or practice" of a foreign government that "could inhibit growth or intended operations," and any other act, practice or action that "could undermine global competitiveness" of US enterprises (again BIT practice and perhaps ICSID expectations and decisions could provide a basis for interpretation/application). ).
(4) the fine, penalty, tax, or other burden must be (1) discriminatory, or disproportionate, or (ii) designed to transfer "significant funds or intellectual property" from U.S. companies to either (i) a foreign government or (ii) a foreign domestic entity "favored" by a foreign government (the application of these terms remains to be fleshed out though again BIT practice may be is some help). The sense here is of constructive expropriation by virtually any means.
2. Actions/Consequence.
The action consequence consists of a set of mirroring actions tied to the form through which the negative impact on US companies occurred (again §2 (a)-(d)--taxes, regulations, acts, policies, practices or any other act that could either inhibit growth or intended operators or that could more generally undermine global competitiveness. The principal instruments are tariffs but also includes other responsive actions " "necessary to mitigate the harm to the United States and to repair any resulting imbalance." (§ 2).
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The bulk of the Executive Order is in Section 3, which allocates administrative responsibility to the apparatus of the Office of the President. Section 3 is notable for naming names, suggesting the targets of the first wave of retaliatory (or mitigating) action: §3(a) (digital services taxes (DSTs) of France, Austria, Italy, Spain, Turkey, and the United Kingdom; §3(b) ("the DST of any other country that may discriminate against United States companies or burden or restrict United States commerce. . . [and] determine whether to pursue a panel under the United States-Mexico-Canada Agreement on the DST imposed by Canada"); §3(c) (identify trade and other regulatory practices by other countries, including, without limitation, those described in section 2 of this memorandum [Australia, Canada, or most members of the European Union]); §3(d) ("any act, policy, or practice of any country in the European Union or the United Kingdom has the effect of requiring or incentivizing the use or development of United States companies’ products or services in ways that undermine freedom of speech and political engagement or otherwise moderate content"); §3 (e) ("determine whether any foreign country subjects United States citizens or companies, including, without limitation, in the digital economy, to discriminatory or extraterritorial taxes, or has any tax measure in place that otherwise undermines the global competitiveness of United States companies, is inconsistent with any tax treaty of the United States, or is otherwise actionable under section 891 of title 26, United States Code, or other tax-related legal authority").
But there may be other states as well: "European countries, including Austria, Spain, Italy and France, alongside Canada and India, have imposed taxes on the total revenue of tech companies such as Apple, Google, Amazon and others operating inside them" (The Hill).
3. Additional Actions:
Section 3(f) directs the USTR to "identify tools the United States can use to secure among trading partners a permanent moratorium on customs duties on electronic transmissions." The idea appears to be to extend the palette fof reciprocal mitigating measures beyond tariffs. Section 3(g) requires the establishment of a complaints reporting system. The effect is to augment the capacity of the state to discover harms by permitting affected enterprises to complain. The "United States Trade Representative, in consultation with the Secretary of Commerce and the Senior Counselor to the President for Trade and Manufacturing, shall establish a process that allows American businesses to report to the United States Trade Representative foreign tax or regulatory practices that disproportionately harm United States companies."
4. Context.
The provisions of Defending American Companies are best understood alongside its counterpart "America First Investment Policy". That one focused primarily on China, though it radiated outward from there. Defending American Companies starts much closer to home, targeting the European Union, the UK, Canada, and Australia. One looks to national security for its motivation, the other looks to market distortion and extortion, especially among liberal democratic allies, as the predicate for retaliation. They form two sides of the same coin, united by a reaction to what from the U.S. perspective is unequal treatment or aggressive efforts to exploit or produce negative impacts by opening U.S. markets.
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The text of Defending American Companies and Innovators From Overseas Extortion and Unfair Fines and Penalties and the Factsheet (February 21, 2025) follows below.
MEMORANDUM FOR THE SECRETARY OF THE TREASURY
THE SECRETARY OF COMMERCE
THE UNITED STATES TRADE REPRESENTATIVE
THE SENIOR COUNSELOR TO THE PRESIDENT FOR TRADE
AND MANUFACTURING
SUBJECT: Defending American Companies and Innovators From
Overseas Extortion and Unfair Fines and Penalties
Section 1. Purpose.
In recent years, the gross domestic product of the United States’
digital economy alone, driven by cutting-edge American technology
companies, has been bigger than the entire economy of Australia, Canada,
or most members of the European Union. Instead of empowering their own
workers and economies, foreign governments have increasingly exerted
extraterritorial authority over American companies, particularly in the
technology sector, hindering these companies’ success and appropriating
revenues that should contribute to our Nation’s well-being, not theirs.
Beginning in 2019, several trading partners enacted digital services
taxes (DSTs) that could cost American companies billions of dollars and
that foreign government officials openly admit are designed to plunder
American companies. Foreign countries have additionally adopted
regulations governing digital services that are more burdensome and
restrictive on United States companies than their own domestic
companies. Additional foreign legal regimes limit cross-border data
flows, require American streaming services to fund local productions,
and charge network usage and Internet termination fees. All of these
measures violate American sovereignty and offshore American jobs, limit
American companies’ global competitiveness, and increase American
operational costs while exposing our sensitive information to
potentially hostile foreign regulators.
My Administration
will not allow American companies and workers and American economic and
national security interests to be compromised by one-sided,
anti-competitive policies and practices of foreign governments.
American businesses will no longer prop up failed foreign economies
through extortive fines and taxes.
Sec. 2. Policy.
It is the policy of my Administration that where a foreign government,
through its tax or regulatory structure, imposes a fine, penalty, tax,
or other burden that is discriminatory, disproportionate, or designed to
transfer significant funds or intellectual property from American
companies to the foreign government or the foreign government’s favored
domestic entities, my Administration will act, imposing tariffs and
taking such other responsive actions necessary to mitigate the harm to
the United States and to repair any resulting imbalance.
In taking such responsive action, my Administration shall consider:
(a) taxes imposed on United States companies by foreign
governments, including those that may discriminate against United States
companies;
(b) regulations imposed on United States
companies by foreign governments that could inhibit the growth or
intended operation of United States companies;
(c) any
act, policy, or practice of a foreign government that could require a
United States company to jeopardize its intellectual property; and
(d) Any other act, policy, or practice of a foreign government that
serves to undermine the global competitiveness of United States
companies.
Sec. 3. Agency Responsibilities.
(a) The United States Trade Representative shall determine, in
accordance with applicable law, whether to renew investigations under
section 301 of the Trade Act of 1974 (19 U.S.C. 2411) of the DSTs of
France, Austria, Italy, Spain, Turkey, and the United Kingdom, which
were initiated under my Administration on July 16, 2019, and June 5,
2020. If the United States Trade Representative determines to renew
such investigations, he shall take all appropriate and feasible action
in response to those DSTs.
(b) The United States Trade
Representative shall determine, consistent with section 302(b) of the
Trade Act of 1974 (19 U.S.C. 2412(b)) (section 302(b)), whether to
investigate the DST of any other country that may discriminate against
United States companies or burden or restrict United States commerce.
He shall further determine whether to pursue a panel under the United
States-Mexico-Canada Agreement on the DST imposed by Canada and whether
to investigate Canada’s DST under section 302(b). In making these
determinations, the United States Trade Representative shall consult
with the Secretary of the Treasury, as appropriate.
(c)
The Secretary of the Treasury, the Secretary of Commerce, and the United
States Trade Representative shall jointly identify trade and other
regulatory practices by other countries, including, without limitation,
those described in section 2 of this memorandum, that discriminate
against, disproportionately affect, or otherwise undermine the global
competitiveness or intended operation of United States companies, in the
digital economy and more generally, and recommend to me appropriate
actions to counter such practices under applicable authorities. The
United States Trade Representative shall include the results of this
review as part of the report required in section 5(c) of the
Presidential Memorandum of January 20, 2025 (America First Trade Policy)
(America First Trade Policy Memorandum).
(d) The
Secretary of the Treasury, the Secretary of Commerce, and the United
States Trade Representative shall investigate whether any act, policy,
or practice of any country in the European Union or the United Kingdom
has the effect of requiring or incentivizing the use or development of
United States companies’ products or services in ways that undermine
freedom of speech and political engagement or otherwise moderate
content, and recommend appropriate actions to counter such practices
under applicable authorities. The United States Trade Representative
shall include the results of this review as part of the report required
in section 5(c) of the America First Trade Policy Memorandum.
(e) The Secretary of the Treasury, in consultation with the Secretary
of Commerce and the United States Trade Representative, shall determine
whether any foreign country subjects United States citizens or
companies, including, without limitation, in the digital economy, to
discriminatory or extraterritorial taxes, or has any tax measure in
place that otherwise undermines the global competitiveness of United
States companies, is inconsistent with any tax treaty of the United
States, or is otherwise actionable under section 891 of title 26, United
States Code, or other tax-related legal authority. The Secretary of
the Treasury shall include the results of this determination as part of
the report required in section 2 of the Presidential Memorandum of
January 20, 2025 (The Organization for Economic Co-Operation and
Development (OECD) Global Tax Deal).
(f) The United States
Trade Representative shall identify tools the United States can use to
secure among trading partners a permanent moratorium on customs duties
on electronic transmissions. The United States Trade Representative
shall include the results of this review as part of the report required
in section 5(c) of the America First Trade Policy Memorandum.
(g) The United States Trade Representative, in consultation with the
Secretary of Commerce and the Senior Counselor to the President for
Trade and Manufacturing, shall establish a process that allows American
businesses to report to the United States Trade Representative foreign
tax or regulatory practices that disproportionately harm United States
companies.
Sec. 4. General Provisions. (a) Nothing in this memorandum shall be construed to impair or otherwise affect:
(i) the authority granted by law to an executive department or agency, or the head thereof; or
(ii) the functions of the Director of the Office of Management
and Budget relating to budgetary, administrative, or legislative
proposals.
(b) This memorandum shall be implemented consistent with applicable law and subject to the availability of appropriations.
(c) This memorandum is not intended to, and does not, create any
right or benefit, substantive or procedural, enforceable at law or in
equity by any party against the United States, its departments,
agencies, or entities, its officers, employees, or agents, or any other
person.
(d) The United States Trade Representative is authorized and directed to publish this memorandum in the Federal Register.
* * *
SAFEGUARDING AMERICA’S SOVEREIGNTY OVER ITS ECONOMY: Today, President Donald J. Trump signed a memorandum to defend American companies and innovators from overseas extortion.
- This Administration will consider responsive actions like tariffs to
combat the digital service taxes (DSTs), fines, practices, and policies
that foreign governments levy on American companies.
- DSTs allow foreign governments to collect tax revenue from American companies simply because they operate in foreign markets, even though those companies are generally not otherwise subject to foreign jurisdiction.
- President Trump will not allow foreign governments to appropriate America’s tax base for their own benefit.
- This memorandum directs the United States Trade Representative (USTR) to renew the DST investigations under Section 301 that were initiated during President Trump’s first term, and investigate any additional countries that use a DST to discriminate against U.S. companies.
- The Administration will review whether any act, policy, or practice in the European Union or United Kingdom incentivizes U.S. companies to develop or use products and technology in ways that undermine free speech or foster censorship.
- Foreign governments will invite responsive actions from the Administration if they take steps to coerce U.S. businesses to hand over their intellectual property.
- Regulations that dictate how American companies interact with consumers in the European Union, like the Digital Markets Act and the Digital Services Act, will face scrutiny from the Administration.
DEFENDING AMERICAN COMPANIES FROM EXTORTION: President Trump’s memorandum unveils a comprehensive approach to ensuring that U.S. products and services are governed by the United States of America, not foreign governments.
- Rather than position their own companies and workers for success,
foreign governments have been taxing the success of America’s companies
and workers.
- America’s economy will not be a source of revenue for countries that have failed to cultivate economic success of their own.
- To the detriment of America’s economy, in recent years, a number of
our trading partners began enacting DSTs to raise revenue for their own
government spending.
- Foreign governments could collect billions in DSTs from U.S. companies annually.
- This exploitation goes beyond DSTs to other forms of unfair fines, practices, and penalties that undermine the ability of American companies to operate as intended and force them to incur additional compliance costs, lowering U.S. global economic competitiveness.
- In terms of GDP, the United States digital economy has been larger than most countries’ entire economy in recent years, including Australia, Canada, and most members of the European Union.
- America’s digital economic dominance is driven by cutting-edge American tech companies, and the American innovation and workers behind them.
RESTORING THE ENTREPRENEURIAL SPIRIT OF AMERICA: President Donald J. Trump has a track record of protecting American manufacturers and empowering American innovators and workers.
- During his first administration, President Trump initiated Section 301 cases against DSTs and negotiated platinum-standard rules for digital trade with Japan and separately through the USMCA.
- President Trump demonstrated in his first term that punitive measures like tariffs strengthened the U.S. economy and brought back American industry.
- Just last week, President Trump announced the “Fair and Reciprocal Plan” on trade to restore fairness in U.S. trade relationships and counter non-reciprocal trade agreements.
- On Day One, President Trump initiated his America First Trade Policy to make America’s economy great again.
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