Trade tensions between the European Union and the United States appeared to be easing yesterday, after a top EU official said Brussels could decide against immediate retaliation for US steel tariffs and illegal tax breaks for American exporters.

EU Trade Commissioner Mr Pascal Lamy told the European American Business Council that the EU may refrain from imposing initial sanctions on the United States for the hefty steel duties, set by the Bush administration in March, if ample exclusions for European steel products were "on the table".

In addition, potential EU sanctions on up to $4 billion (€4.1 billion) of US goods in a separate case involving tax breaks for US exporters would stay "in the fridge" as long as the United States makes good progress toward changing its laws, he said.

President George W. Bush's decision in March to impose tariffs of up to 30 per cent on steel to help the domestic industry restructure after a string of bankruptcies angered the EU and other trading partners around the world.

The EU has challenged the action at the World Trade Organisation (WTO) and has also threatened to hit back at an initial basket of more than $300 million worth of goods unless the United States pays compensation by lowering tariffs on other goods that Europe ships to the US.

So far, the Bush administration has ruled out compensation but it recently has begun exempting additional foreign steel products from the tariffs, with the stated aim of ensuring that US manufacturers have adequate supplies.

However, Mr Lamy said he still expected the WTO to rule against the tariffs when it finishes its review by the middle of next year and that the EU would reserve its right to impose sanctions if that was the case.

But he acknowledged that the Bush administration's ongoing process of excluding certain foreign steel products from the tariffs could help defuse tensions on steel.

Mr Lamy said one issue that could be far more harmful to efforts to conclude a new round of WTO talks by the end of 2004 was the administration's difficulty winning authority from Congress to seal broad new trade agreements.

He urged business leaders "to spell out very clearly" to members of Congress "what would be the huge cost of failure" if they did not approve the trade promotion authority bill.

The EU cannot bear the sole burden for "setting the pace" in Geneva if the WTO talks are to finish on time, he said.