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Last Updated: Friday, 12 May 2006, 06:08 GMT 07:08 UK
US tax vote halts EU trade threat
US President George W Bush
Mr Bush sees his tax-break package boosting economic growth
The US has voted to end corporate tax breaks for some of its biggest firms including Boeing and Microsoft, heading off sanctions from the European Union.

The move was part of a wider $70bn (37bn) tax-cut package put forward by President George W Bush.

In a long-running spat, the US and EU had clashed over tax breaks for US exporters, which the World Trade Organization (WTO) ruled were illegal.

The EU was set to implement retaliatory tariffs on US goods from next week.

Brussels had warned that it would slap a 14% import duty on US goods worth some $2.4bn.

'Now withdraw'

US Trade Representative Rob Portman said that the US had now "taken the steps necessary to comply with its WTO obligations in this matter".

The problem was defused late Thursday when the US Senate voted to accept a wide-ranging raft of tax cuts, which as well as ending the corporate tax breaks also aimed at lowering investor costs and giving cash back to families.

EU Trade Commissioner Peter Mandelson said that the US decision would help ensure a positive atmosphere at next months' trade summit between the US and EU in Vienna.

He continued that: "The EU, which had been authorised by the WTO to enforce retaliatory measures if the tax benefits were not removed, will now withdraw the reintroduction of sanctions foreseen for 16 May."

Getting a lift

President Bush said the tax plan would boost economic growth in the US. It comes at a time when his approval rating has dropped to its lowest since he came to power.

The legislation will extend a lower capital gains tax rate of 15% until 2010, and continue a minimum tax break to stop middle-income families having to pay more.

President Bush said the legislation will prevent "an enormous tax hike that the American people do not want and would not welcome".

The bill was passed by 54 votes to 44 votes in the Senate.

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