A damaging trade war between the USA and the European Union has come one step closer to ending with a move to reform a US tax loophole ruled illegal two years ago. The US Senate voted to eliminate the Foreign Sales Corporation/Extraterritorial Income Exclusion (FSC/ETI) law, phasing out its tax benefit, and which the World Trade Organisation ruled illegal, by 2006.
EU trade representative Pascal Lamy says: "It goes without saying that the moment WTO-compliant legislation becomes law, the EU will automatically repeal its countermeasures. "After giving the USA over a year to close the loophole, the EU imposed sanctions on 1 March this year, and has been steadily increasing their level since. Aerospace products were excluded from the sanctions, but US aerospace exporters, chiefly Boeing, made hundreds of millions from the loophole. They will, however, be compensated by a cut in domestic taxes, which will be phased in as the loophole is closed over the next three years. The bill will now face a vote in the House of Representatives. The decision represents another climbdown by the US government over trade tariffs - earlier taxes designed to protect the US steel industry were ended late last year after 18 months in operation, when the EU threatened to impose punitive import taxes in retaliation.
ALEXANDER CAMPBELL / LONDON
Source: Flight International
