The European Union said yesterday it would remove trade sanctions imposed on the United States in a dispute over US corporate tax subsidies.
But the EU warned it might levy new sanctions next year over continued benefits it sees as illegal to the aircraft maker Boeing and other US companies.
In a calculated move that will keep the five-year-old trade dispute simmering, the EU praised the US for finally complying with a World Trade Organisation (WTO) ruling that the $4 billion (€3.1 billion) Foreign Sales Corporation (FSC) scheme was an illegal tax subsidy.
But the EU plans to take the issue back to the WTO, seeking a ruling on whether the US remains in violation because of special provisions that will leave the tax subsidy in place for contracts already signed on future deliveries of aircraft and other heavy goods.
President George W. Bush signed legislation last Friday that will phase out the FSC scheme, beginning next year, and replace it with nearly $140 billion in new corporate tax breaks. The bill was propelled through Congress by the need to end the European tariff penalties against US imports, which have cost $200-$300 million since March.
However, the EU says it is not entirely happy with the outcome. Outgoing Trade Commissioner Mr Pascal Lamy said yesterday that he would ask the WTO to review the US bill because of continued concerns about the "grandfathering" arrangement.
In a statement, the EU noted that Boeing had contracts for billions of dollars in future aircraft deliveries that would continue to receive the FSC benefits.
The EU also continues to have concerns over a two-year transition period for phasing out FSC benefits, but has said it could live with the transition as long as the rest of the legislation complied with WTO rules.
"We can accept a transition period [ for abolishing the FSC] but not a super-transition that could benefit some companies beyond 2006," Mr Lamy said.
The EU move is primarily aimed at maintaining leverage against Boeing, which is backing Washington in a separate WTO complaint against European subsidies for Airbus, its rival in the large civil aircraft market.
The US has warned the EU against linking the two disputes and trying to use the FSC benefits for Boeing as a bargaining tool.
But, in a statement yesterday, Washington made no mention of the linkage. Mr Richard Mills, a spokesman for the US trade representative's office, welcomed the EU move, saying the US was now clearly in compliance with WTO rules.
Mr Lamy said it was too early to speculate on the size of tariffs that could be reintroduced if the WTO again sided with the EU.
