Slovakia yesterday came to a deal on the economic competition area of European Union rules after Spain dropped its objections to the Slovak government’s continuing financial support of a Volkswagen factory in Bratislava.

VW, which has decided to shift its production of the Seat Ibiza model from Spain to Slovakia, will be allowed to keep most of the tax breaks promised by the Slovak government through 2008, although the extent of the aid will be limited to 30 per cent of the car maker’s investments. VW has been one of Slovakia’s most important foreign investors since settling in Bratislava in 1991.

Steel firm US Steel Košice, on the other hand, will be allowed to keep up to $500 million worth of the tax breaks it had been promised through the year 2009.

European rules forbid state aid to steel and auto sector firms, and Slovakia had faced stiff opposition to keeping its investment stimuli in these branches following its expected entry to the EU in 2004.

Other aid the Slovak government has offered to dozens of investors will have to be phased out within a year of entering the Union.

Compiled by Tom Nicholson from press reports.

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