UPDATE 1-EU drops controversial phone tax plan

Wed Jul 1, 2009 6:40pm EDT

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* Large majority votes for duty-free treatment of handsets

* EU Commission planned new duties on phones

* Industry pleased

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By Tarmo Virki, European technology correspondent

TALLINN, July 1 (Reuters) - The European Union decided on Wednesday to halt a controversial plan to introduce new taxes on cellphones, Sweden said.

The plan would have raised phone prices for consumers and further squeezed already shrinking phone sales on the continent.

Sweden, which holds the rotating presidency of the EU, said a large majority of the countries voted for the duty-free treatment of cellphones to continue in the Customs Code Committee's meeting.

In December, the EU Commission sent member states a formal proposal to reclassify many phones as "multi-functional devices," which would have triggered a 14 percent tax on phones with TV receivers and 3.7 percent on navigation-enabled phones.

Europe's top cellphone vendors, Finnish Nokia (NOK1V.HE) and Swedish-Japanese Sony Ericsson (6758.T)(ERICb.ST), and the Nordic countries strongly opposed the tax.

"We need more products and businesses free of tariffs, not less, and therefore today's decision and the backing that was achieved is a very positive signal," Swedish Trade Minister Ewa Bjorling said in a statement.

Nokia and Sony Ericsson together make almost one of every two phones sold in the world.

"Nokia is very pleased that the Commission is taking this view and that the uncertainty surrounding the issue is now being removed," said a spokesman for Nokia.

While GPS chips are currently used mostly in top-end cellphones, Nokia and others are increasingly looking to use them in mass-market phones.

For mobile TV, thus far launched in just a few countries, an additional 14 percent tax would have been another major blow.

While the mobile industry has grown faster in countries with cheap labour there are still handset manufacturing plants in the EU -- in countries like Finland, Britain, Hungary, Romania and Estonia. (Reporting by Tarmo Virki; Additional reporting by Niklas Pollard in Stockholm and Bate Felix in Brussels; Editing by Gary Hill, Leslie Gevirtz)

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