The European Commission will introduce trade sanctions against US goods worth up to $4 billion (€3.5 billion) next year if the World Trade Organisation (WTO) confirms next week a ruling that US tax breaks for exporters are in breach of international trade rules.

The Commission will add an extra tariff of 5 per cent to a range of US products, from leather goods to precious metals, with the tariff rising by 1 per cent each month for a year.

The Trade Commissioner, Mr Pascal Lamy, said the measures were in line with a WTO ruling earlier this year.

"The Commission hopes to pass a very clear message to the US that their continued failure to implement three years after the expiry of the original WTO deadline is unacceptable.

"I have just been to Washington and have clearly explained our position. Still, we have opted for a measured approach and have actually left the door open for US action before countermeasures are to be applied in March 2004," he said.

The Commission is also considering the imposition of higher tariffs on a further $2.2 billion of US goods in response to steel import tariffs imposed by Washington. The EU approach is a cautious one, aimed at inflicting as little damage as possible to the EU-US trade relationship, which is worth €1 billion a day.

The US Ambassador to the EU, Mr Rockwell Schnabel, said that the imposition of sanctions would not help to resolve the trade disputes between Brussels and Washington. "We think we have a solution and we don't think it is helpful at this stage," he said.