Walker's World: The changing French alliance

By MARTIN WALKER, UPI Editor Emeritus  |  Feb. 10, 2014 at 12:03 AM
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WASHINGTON, Feb. 10 (UPI) -- French President Francois Hollande's state visit to the United States this week (without any lady friend in tow) is being touted as a revival of America's oldest alliance. The trouble will be in the newest areas of commerce.

In geopolitical terms, the alliance is in good shape. France is taking the lead in peacekeeping and anti-al Qaida missions in Mali and the Central African Republic with U.S. intelligence and logistic support. France has been unexpectedly tough in key diplomatic issues, tightening the deal to rein in Iran's nuclear potential and being the most gung-ho of Western nations in the threat of force against the Syrian regime.

This has been useful for the Obama administration. U.S. presidents like to have serious partners. On Iran, the French were probably right. On Syria, the French at least temporarily replaced Britain as the United States' most reliable ally of choice after the British House of Commons stunned and disappointed Prime Minister David Cameron by voting against military intervention. (In retrospect, the British Parliament might have done U.S. President Barack Obama a favor.)

So despite the potential protocol embarrassments of Hollande's cavalier romantic relationships, he will get a warm welcome at the Obama White House. He is getting a black tie state dinner (only Obama's fourth) , a trip on Air Force One and a joint trip to Thomas Jefferson's stately home at Monticello, to celebrate the only American president who was a former ambassador to France and noted Francophile with a great fondness for the wines of Bordeaux.

But Hollande is also going out to California to visit Silicon Valley and call at Google, Facebook and Twitter. In his entourage will be Fleur Pellerin, his minister for the digital economy. Born in Seoul and adopted by French parents from a Korean orphanage in the 1970s, Pellerin is a graduate of the elite Ecole Nationale d'Administration school for high-flyers that was founded by Charles De Gaulle after World War II to provide France's top administrators. A lucid saleswoman for La France Tech, she is trying to wire France for the fastest broadband in Europe.

But Hollande isn't going to Silicon Valley to marvel but to warn the U.S. high-tech giants that the taxman cometh and that their days of fancy footwork to cut tax bills are over.

"This is not acceptable and that is why, at both the European and the global level, we must ensure that tax optimization can be called into question," Hollande said in France last week after media reports that France is demanding $1.3 billion in tax from Google over its fiscal strategies.

"Everyone must be in the same competitive situation, including on the fiscal level," Hollande said. "When I go to the U.S. in a few days, we have agreed with President Obama to make this effort on tax harmonization."

As part of a Europe-wide clampdown, French tax inspectors searched Google's Paris offices in June 2011 for evidence of transfer pricing to manage tax liability between countries. France's AFP news service has published court documents showing Google France reported revenue of $264 million in 2012, and paid only $8.9 million in tax on the $11.3 million of net profit it claimed to have earned.

French authorities estimates that Google took is as much as $2 billion in France in 2011 and challenged most of it through a Dutch and then a Bermudan subsidiary to reduce, apparently legally, its tax payments. France is already suing Amazon for $250 million in back taxes. Hollande will remind both Obama and Silicon Valley that the Group of 20 summit last year agreed an action plan to prevent this kind of tax juggling.

And Hollande will raise another tricky issue, the prospects for the Trans-Atlanic Trade and investment Partnership after U.S. Senate Majority Leader Harry Reid, D-Nev., challenged Obama by opposing fast-track authority for the president to negotiate trade deals and then present Congress with a simple yes-no vote.

Most of Europe wants the TTIP, which the EU Commission estimates TTIP deal would increase the size of the EU economy by around $160 billion (or 0.5 percent of gross domestic product) a year and the United States by $130 billion (or 0.4 percent of GDP).

"Despite all difficulties, the chances offered by such a trade accord are much bigger than the risks," German Chancellor Angela Merkel told a news conference Friday. "It will pay off to do our utmost for creating a big trade zone with fewer barriers. If we want to be strong economically, we need such trade partnerships."

So as the two presidents face the cameras and raise their glasses in toasts, their staffs will be haggling over trade, taxes and adapting ground rules to the new high-tech economy of the future. Summit diplomacy these days is becoming more about tax rates than missile throw-weights.

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