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Last Updated: Monday, 13 February 2006, 18:26 GMT
WTO upholds US export tax ruling
Boeing plane under construction
Boeing is one of the firms the EU says has unfairly benefited
The World Trade Organization (WTO) has upheld a ruling calling for the US to end certain export tax breaks.

Turning down an appeal from Washington, the WTO has now given the US 60 days to bring its legislation into line.

European Trade Commissioner Peter Mandelson welcomed the move, but warned the EU could enforce $4bn (2.3bn) in sanctions if the US failed to act.

Although the US has officially stopped the tax breaks, the WTO found that it had unfairly retained some exemptions.

We are seeking nothing more than the re-establishment of a level playing field
Peter Mandelson, European Union Trade Commissioner

While the US wound up the so-called Foreign Sales Corporation tax break in 2004, it gave all firms affected a temporary extension to the rule until the end of this year.

The US also decided that such tax breaks would be able to continue for contracts signed before 17 September, 2003.

'US responsibility'

US firms which the EU says unfairly benefit from the scheme include software giant Microsoft and aircraft maker Boeing.

"The responsibility now lies squarely with the US," said Mr Mandelson. "We are seeking nothing more than the re-establishment of a level playing field."

However, US officials warned that imposing sanctions could put trade relations between Washington and the EU under strain.

"Prolonging the dispute would not serve to foster harmonious transatlantic relations," a spokeswoman for the Office of the US Trade Representative said.

"New EU sanctions will reinforce the perception that the EU is primarily acting in response to the US filing of a WTO complaint against Airbus subsidies."

Brussels estimates that the tax breaks are worth up to $180m a year to Boeing alone.

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