BRUSSELS (Dow Jones)--An appellate body at the World Trade Organization Monday ruled export tax subsidies the U.S. has been paying to local companies are illegal, ending years of legal wrangles.
The Geneva-based trade body ruled last October changes in U.S. law didn't go far enough to end a system of tax breaks to U.S. exporters, but the U.S. government appealed that ruling.
European trade chief Peter Mandelson warned the U.S. government he will re-launch trade sanctions if Washington doesn't change its tax break regime within three months.
"The E.U. will not accept a system of tax benefits which give U.S. exporters including Boeing an unfair advantage against their European competitors," Mandelson said in a statement.
"We are seeking nothing more than the reestablishment of a level playing field."
The WTO's ruling comes at a time of heightened trade friction between Europe and the U.S.
The U.S. wants Europe to ease its rules on imports of genetically modified grains and U.S. hormone-treated beef. Europe charges the U.S. hasn't gone far enough to abolish a trade law that benefits U.S. companies, which the WTO ruled illegal last year.
Both sides accuse each other of illegally subsidizing their aircraft sectors. An ongoing fight about these subsidies is gaining pace as lawyers on both sides gather vast tomes of evidence.
The E.U. charges U.S. export tax subsidies doled out under the so-called Foreign Sales Corporation Regime mainly benefit aircraft giant Boeing Co. (BA), giving it an unfair advantage over its European rival Airbus (ABI.YY).