By Bruno Waterfield - 14th February 2006
Washington has accused the EU of using a WTO dispute over tax breaks as a bargaining chip in a separate trade row over aircraft subsidies.
The US has hit back at EU threats to re-impose sanctions on American goods after a WTO ruling on Monday.
The WTO backed EU claims that despite changes to legislation, Washington has failed to abide by earlier demands to amend the US Foreign Sales Corporation (FSC).
The press spokeswoman for the office of US trade representative Rob Portman has urged the EU to step back from sanctions.
“Congress has repealed the FSC… and prolonging this dispute will not serve to foster harmonious transatlantic relations,” she said.
90 days
The US has 90 days to repeal Washington tax breaks for American exporters before EU sanctions worth up to €4bn bite.
European trade commissioner Peter Mandelson stressed he “stands ready to work closely with the US toward finding a solution to this dispute”.
“But the EU will not accept a system of tax benefits which give US exporters including Boeing an unfair advantage against their European competitors.”
“We are seeking nothing more than the reestablishment of a level playing field,” he said in a statement.
“The US now has three months to act to avoid the re-imposition of retaliatory measures in this case.
Grandfather clause
The WTO found that the 2004 US Jobs Creation Act contained a “grandfathering clause” that exempted trade before September 17 2003.
And the loophole “applies to both sales and lease contracts (and their options) which typically run for a number of years from the moment they are signed until final delivery of the goods”.
“The aim of the grandfathering clause is to ensure that certain US exporters will continue to obtain WTO-prohibited export subsidies many years into the future on products that have not yet been built or exported, even beyond the expiry of the FSC transitional period in 2006.”
“Some of the biggest beneficiaries of the grandfathered tax-breaks include Boeing and General Electric,” said a commission statement.
Boeing bargaining
The US insists that “grandfather” provisions are negligible and note “some of the… tax breaks go to Boeing Company, rival of EU-subsidised Airbus”.
“The general transition provision expires at the end of this year, and any benefits from the grandfather provisions will be extremely small,” said the spokeswoman.
“[Sanctions will] reinforce the perception that the European commisson is primarily acting in response to the US filing of a WTO complaint against Airbus subsidies.”
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