EU steps up pressure over aircraft battle

The EU is to postpone lifting world trade sanctions against the US – measures originally imposed against illegal, and now repealed, American tax breaks.

Brussels is also set to re-impose more than €224 million in import tariffs on January 1 2006 if the World Trade Organisation rules that the corporate tax subsidy is still being used, reports FT Europe.

Washington thought the tax subsidy issue had been resolved when the US Congress agreed in October to repeal the so-called Foreign Sales Corporation scheme.

But the EU decision is reportedly linked to the ongoing EU-US Airbus-Boeing aircraft dispute.

Brussels is concerned that Boeing will continue to receive tax benefits worth more than €150 per year.

Congress agreed to a two year phase out of the subsidy and kept tax benefits for long term contracts agreed before the FSC was repealed.

Washington sparked tit-for-tat world trade litigation with Brussels in October, tearing up a 1992 EU-US agreement regulating state aid to the Boeing and Airbus aircraft manufacturers.

The US and EU agreed earlier this month to allow more time for discussions to reach an agreement but warned that litigation by the World Trade Organization remained an option if no progress could be made.

During a visit to the Toulouse headquarters of Airbus on Wednesday, EU trade chief Peter Mandelson told reporters that "there is an issue of false perception on the American side".

"Just because Airbus is a formidable competitor does not mean that it is unfairly subsidised. The world market is big enough for two strong successful competitive companies", he added.

US Trade Representative Robert Zoellick said last week that Washington was serious about legal action and would move soon if no progress was made.

Competition between the two sides has become fierce as Airbus has increased its market share, to the disadvantage of its US competitors.

Airbus gets support from EU national governments in the form of repayable loans and Boeing gets indirect backing through spill over from the NASA research and development budget and the Department of Defence.

Both sides accuse each other of receiving illegal subsidies.

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