The WTO has authorised the European Union to impose a record $4 billion a year of trade sanctions against the US in a dispute over tax breaks for US multinationals, trade sources said.
Brussels presented a list of US products against which it may now impose punitive duties, complaining that Washington had failed to comply with a World Trade Organisation ruling against the tax breaks.
The level of retaliation is the highest ever authorised by the Geneva-based trade body in its eight-year history, but the authorisation does not mean the measures automatically take effect.
The EU said earlier today it would give the US until the autumn to change the so-called foreign sales corporations tax system.
EU Trade Commissioner Pascal Lamy said he was 'encouraged' by US action to repeal the law, and confident of the US' determination to do so. However, he warned that if Washington made no progress, the EU would seek to adopt the sanctions by January 1 2004.
US companies such as Boeing and Microsoft have benefited from the FSC system which allows US firms carrying out business through subsidiaries in offshore tax havens to benefit from reduced export taxes.
The EU has listed 95 categories of US products on which it could impose additional duties of up to 100% that range from dairy, cereal, meat and vegetables products, to wood, leather, fur and textiles. It also includes glass and ceramic products, iron and steel, cutlery, nuclear reactors, boilers and machinery, copper and aluminium, toys and games and sound recorders.
The EU first challenged the US tax breaks in 1997 on the grounds that they provided a de facto subsidy that gives US companies an unfair advantage over European rivals. The US Congress passed in 2000 legislation overhauling the law after the WTO ruled against Washington, but the EU complained to the WTO that the changes were inadequate.
The WTO confirmed in January 2002 that the FSC system flouted global trade rules, and arbitrators later agreed with the EU that just over $4 billion would constitute 'appropriate countermeasures' based on the trade impact of the US policy.
