EU threatens $14bn imports

Tariff list covers US items from avocados to yak hair.

The EU yesterday stepped up pressure on the American government in its long-running trade row over illegal tax breaks when it threatened to exert punitive tariffs on thousands of exports, from nuclear reactor parts to chewing gum.

Announcing a list of $14bn (£9bn) worth of goods that it is considering targeting, the EU insisted it would accept nothing less than a complete repeal of the tax breaks which the World Trade Organisation has deemed contravene global trade rules.

Brussels won the right from the WTO last month to impose $4bn worth of sanctions on US goods, and the list will be whittled down after the European commission has considered submissions from industry.

As business leaders warned that a transatlantic trade war could be the last straw for the fragile world economy, Brussels insisted that it was prepared to go ahead with the sanctions if Congress refuses to change its tax laws.

The Bush adminstration has promised to amend the offending legislation but is facing opposition from rightwing members of its own party, who resent interference from the WTO in America's tax code.

A spokeswoman for the EU trade commissioner, Pascal Lamy, said Brussels was monitoring their efforts closely.

"If the work is not progressing, we will not have patience," she said.

The European commission has deliberately targeted goods in which America accounts for less than a fifth of imports in order to minimise the prospect of price rises for European consumers.

Business leaders yesterday urged the commission to take care of detonating what Washington has described as a nuclear weapon.

"Sanctions are a last resort," said Monique Julien, a spokeswoman for another business lobby, UNICE.

Xavier Durieu, the secretary-general of Eurocommerce, insisted that care must be taken to avoid hurting European industry. "Any retaliation by the EU for illegal US subsidies must be effective."

Washington warned that the tariffs could harm European industry as well as American companies.

"This is truly a doubled-edged sword," said Rich Mills, a spokesman for the US trade representative's office.

Both sides have played down the immediate threat of a transatlantic trade war in recent months as the world economy has weakened.

In a sign that it would prefer compliance to retaliation, the EU is allowing an unusually long, 60-day consultation pe riod with industry before it draws up its final list.

President George Bush promised last May to comply with WTO obligations, but it is uncertain whether a bill introduced in Congress will be passed this year.

European industry is also in an ambivalent position because its imports of US goods will be made more expensive if the EU goes ahead with the sanctions.

"It is important to retaliate as the EU cannot tolerate the unilateralism that is shown by the US, and it is important to give a signal that this is not possible," said Ralph Kamphoener, an international trade adviser at industry group Eurocommerce.

"On the other hand, it is not tolerable that the commerce sector in Europe is caused any harm."

20 things you didn't know we could go to war over

1 Birds of prey

2 Dolphins

3 Nuclear reactor parts

4 Boiled sweets

5 Chewing gum

6 Soap powder

7 Wallpaper

8 Yak hair

9 Polyester underwear

10 Barbed wire

11 Dolls' carriages

12 Stuffed toys

13 Vacuum cleaners

14 Pruning shears

15 Cufflinks

16 Ski-boots

17 Canned tuna

18 Muesli

19 Avocados

20 Human hair