The European Commission has said it has been vindicated by the World Trade Organisation (WTO) in a complaint over the United States' favourable treatment of its exporters.

The EU had protested to the WTO about America's Foreign Sales Corporations Replacement Act, which provides certain tax breaks to some US exporters and firms with foreign affiliates.

The Act, which itself replaced earlier US legislation that violated WTO rules, was an unfair export subsidy, the EU argued.

Although the WTO has not yet formally published its ruling, the Commission announced that its complaint had been upheld.

The US has until 19 October to appeal, and is widely expected to do so.

US President George W Bush came under pressure from business leaders to appeal against the ruling earlier in August, as the outcome had been widely leaked in advance.

Sanctions threat

In theory, depending on the outcome of an appeal, the dispute could lead to EU sanctions on US trade.

The Commission said it could seek sanctions against the US equivalent to $4bn-5bn (�2.8bn-3.5bn) - the amount by which it claims US exports are subsidised under the rules.

Brussels is unlikely go that far, however.

Sanctions would throw into disarray preparations for the WTO's next round of global trade talks, due to be launched at a meeting in Qatar in November.

Both the EU and the US have been keen proponents of a new round, and have striven to win over reluctant less developed countries.

Uneasy partners

But the two sides nevertheless have a history of disagreement.

Only in July, the US finally lifted sanctions on a range of EU goods, imposed during a two-year row over bananas.

And the US still has 100% tariffs against Danish ham, French cheese and German chocolate, in retaliation for a European ban on American beef, which is produced with growth hormones.