The European Commission plans for punitive tariffs on U.S. imports to be dropped after U.S. lawmakers voted to repeal legislation that grants tax breaks to leading exporters, including aircraft manufacturer Boeing Co.
The World Trade Organization ruled tax breaks illegal, after the U.S. Senate voted to scrap them, as it approved a $70 billion package of tax cuts. President Bush is expected to sign the bill next week. EU Trade Commissioner Peter Mandelson said the initiative paved the way for a positive atmosphere at the EU-US Summit next month.
A 14 percent tariff on about $2.5 billion worth of U.S. imports was due to be reimposed on May 16 if the U.S. tax breaks were not scrapped, according to the WTO. They temporarily suspended the tariffs in late 2004 while Washington debated amendments to the law.
The rule has been in dispute for decades in various styles, and is sometimes called the “foreign sales corporation” export subsidy. Many U.S. companies, including General Motors and Microsoft have benefited from the system by setting up offshore subsidiaries.
An EU compliant was backed by the WTO claiming it gave U.S. companies an unfair advantage and broke world trade rules. The single largest beneficiary was claimed to be Boeing, which received about $1.6 billion in subsidies under the program from 1995 to 2005.