European businesses are urging Mr Pascal Lamy, the European Union trade commissioner, to adopt a more flexible stance in a long-running and bitter trade dispute with the US over corporate taxation.

They are asking Mr Lamy to allow the US a transition period to phase in changes to the so-called Foreign Sales Corporations (FSC) clause, which grants tax breaks to US exporters such as Microsoft, Boeing and Caterpillar.

Brussels has warned that it will impose trade sanctions on US goods worth hundreds of millions of dollars from next month, if Washington fails to revoke the clause. That would require a decision by both houses of the US Congress, and it is thought unlikely that Washington lawmakers will be able to settle the issue before the sanctions come into force.

It would be the first time in the history of transatlantic trade relations that the EU had imposed sanctions on the US, and there is some unease among European business leaders and diplomats about a possible backlash from Washington.

Such fears have prompted the Union of Industrial and Employers' Confederations of Europe (Unice), the European business federation, which claims to represent 16 million companies, to write to Mr Lamy. The letter is signed by Mr Jurgen Strube, Unice president and the supervisory board chairman of German chemical group, BASF.

"The US Congress is considering a three-year transition period [for the tax breaks to be phased out]," the letter says.

The European Commission, which negotiates trade matters on behalf of EU member states, has said that it will not accept a transition period, and that it considers any law that abolishes the FSC clause over a period of time incompatible with international trade rules.