E.U. Internet tax inconsistent and unfair

The European Union, whose well-known penchant for economic regulation has produced rules dictating the acceptable curvature of bananas and the permissible size of the air bubbles in eggs, is set to approve an Internet tax largely directed at U.S. companies.

The E.U. plan will apply a value-added tax to products downloaded from the Internet by European consumers. Not only will the tax increase the cost of purchasing those goods from U.S. and other non-European companies, but it will also put on U.S. companies the immense burden of determining what country cyber-shoppers are in and what the applicable tax rates are.

Deputy Treasury Secretary Kenneth Dam, correctly perceiving the European nations’ motives, said in a recent statement the tax would discriminate against U.S. online companies such as Amazon.com, which are among Europe’s largest Internet retailers. European corporations have complained foreign competitors enjoy a competitive advantage through their exemption from the value-added taxes their European counterparts pay on Internet sales. But it is hardly just to punish American companies for the policy ignorance of European governments. Congress has had the foresight, at least for now, to extend the U.S. moratorium on Internet sales taxes until November 2003, while European leaders appear stuck in an outdated mindset of trade protectionism.

Brink Lindsey, director of the Cato Institute’s Center for Trade Policy Studies, argues knowledgeably in the December issue of Reason magazine that such regressive trade impediments combined with nationalistic fervor in the early 20th century to destroy the first era of globalization brought on by the Industrial Revolution. Modern European nations, exhibiting similar economic jealousy and boiling over – especially in trade giants Britain and Germany – with renewed nationalistic energies, appear to be repeating the history that, in Lindsey’s view, produced decades of economic disruption and two world wars.

Protectionist taxes against foreign goods are a significant step backward for a transnational union whose very existence is based on the realization that economies and people prosper when commerce travels freely across borders.

Policies inhibiting trade are particularly noxious when applied to Internet commerce. Already known as the great equalizer for free speech and education, the Internet stands ready to level the economic playing field for consumers and merchants alike. Consumers worldwide can use e-commerce to purchase goods in areas where physical stores are not economical, and the global shopping mall of Web sites allows innovative entrepreneurs to reach buyers on the same scale to which retail giants aspire.

This fact contrasts starkly with Internet opponents who ironically argue that taxing Internet sales out of the range of affordability for consumers and profitability for small merchants is the correct path to a “level playing field” in commerce. Unfortunately, the European Union has chosen this self-interested view over a full realization of the Internet’s benefits for everyone.

Americans should encourage Congress to stand its ground and force European companies to place the blame for their plight squarely on the shoulders of their own governments’ backward policies.