The European Union yesterday won the right to impose a record $4 billion (€4.1 billion) of sanctions on United States' exports in a dispute over a US corporate tax break scheme.

A World Trade Organisation (WTO) arbitration panel backed the EU's calculation of the value of the tax breaks, which have benefited companies such as Microsoft and Boeing, and rejected US claims that the damages should be closer to $1 billion.

The ruling is likely to further strain transatlantic trade relations, already troubled by the dispute over US steel tariffs.

The sanctions are more than 10 times the total the WTO allowed the US to impose on the European Union in disputes over bananas and beef.

The EU can impose the sanctions immediately.

But it has said it will allow the US time to repeal the offending legislation, which the WTO declared incompatible with its rules earlier this year.

But the European Commission called on Washington yesterday to act by November's congressional elections.

Mr Pascal Lamy, EU trade commissioner, said: "We are satisfied by today's decision that makes the cost of non-compliance with the WTO clear.

"The arbitrators have . . . given us an amount of potential counter-measures which will create a major incentive for the US to eliminate this huge illegal export subsidy."

The Commission stressed sanctions would be the last resort and reiterated its belief that the US administration was trying to comply with the WTO ruling.

Mr Robert Zoellick, US trade representative, expressed disappointment about the size of the potential sanctions but predicted that "today's finding will ultimately be rendered moot by US compliance with the WTO's recommendations and rulings".

He said the administration was working closely with Congress "to fully comply with our WTO obligations".

However, US officials saw little possibility of a bill passing this year.

Legislation introduced by Mr Bill Thomas, chairman of the House Ways and Means Committee, has been blocked by Democrats and Republicans with big exporters, such as Microsoft and Boeing, in their districts.

Mr Stuart Eizenstat, a former senior Clinton administration trade official, said: "This is a time for statesmanship, not retaliation.

"Sanctions would badly damage both the struggling EU and US economies."

He urged Congress not to "overreact by precipitously passing legislation that does not maintain US competitiveness".

The Commission is expected to publish a draft list of possible targets for retaliatory duties in the next 10 days.

The European business group, Unice, fearful of damage caused by more expensive imports, warned the Commission against rushing into sanctions before giving the US time to comply. - (Financial Times Service)