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Europe

EU to Lift Trade Sanctions Against US

The EU commission acted Monday to ease trade tensions with the United States, saying it would lift sanctions after US President George W. Bush approved a repeal of illegal corporate tax breaks.

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Steel has been a major sticking point in transatlantic trade disputes

At the same the EU commission also said it would check whether a new US law providing export assistance is compatible with World Trade Organization rules.

"Following the American president's decision, I am going to propose to the (European Union's) Council of Ministers to put an end to sanctions," outgoing trade commissioner Pascal Lamy told a press conference in Brussels on Monday.

On Friday, US President Bush signed legislation repealing the "foreign sales corporation (FSC)" and "extraterritorial income" provisions of the US tax code -- a $5billion (€4 billion) a year tax break for exporters.

In January 2003, the World Trade Organization ruled the old law flouted global trade rules by allowing US firms, operating through subsidiaries in offshore tax havens, to benefit from reduced export taxes.

Lamy credited with good ties to US

"I am very pleased that (the United States) respected the WTO decision before the end of this commission's term," Lamy said six days before he is to leave his post after serving for five years.

The new US law is aimed at painlessly resolving a six-year dispute over tax breaks for US companies with foreign operations such as Microsoft, IBM, Boeing and Caterpillar.

Handelsstreit zwischen USA und EU, Pascal Lamy und B. Zoellick

European Union Trade Commissioner Pascal Lamy, right, with US Trade Representative Robert B. Zoellick

"This signature is good news. It's good news for the rule of law, and it's good news for the World Trade Organization," Lamy said, while thanking US counterpart Robert Zoellick.

Lamy, who took up the post as EU trade commissioner in 1999 is credited with having cultivated good relations with his US counterpart. Though the goodwill hasn't prevented Zoellick and Lamy from being at loggerheads in recent years over tax breaks for exporters, airplanes, genetically-modified meat, bananas, steel and a host of other things, it has ensured that the trade rows haven't spiraled out of control.

Washington's willingness to lend a ear to EU complaints is also attributed to to Lamy's efforts to ensure that the EU consistently speaks with one voice when it came to transatlantic trade. Lamy is also seen as an untiring proponent of globalization, always stressing that the EU should open up its markets, particularly towards developing countries.

Concern over "grandfathering" clause

The EU commission nonetheless voiced concern over a so-called "grandfathering" clause in the US reforms that maintain FSC provisions until the end of 2006 and "in certain cases for an unlimited period after that date."

As a result, the EU's executive arm will ask for a new WTO ruling on Washington's revised position.

"We said we were willing to accept a transition period as long as everything ended at the end of that period," Lamy said. "But we have some doubts."

The law that Bush signed Friday extends massive new assistance for US companies valued at nearly $140 billion over the next decade.

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