The EU is stepping up pressure for a US climb-down

At issue is the Byrd Amendment, under which US companies get part of the fines levied against rivals who sell products at artificially low prices.

The World Trade Organisation (WTO) found that the payments were illegal.

John Veroneau, general counsel in the US Trade Representative's office, said the US would seek arbitration as the law does not hurt European exporters.

Unfair

EU Trade Commissioner Pascal Lamy said on Monday the US must comply with the WTO's decision or face the consequences.

Mr Lamy said he hoped the US government would take action to avoid the risk of sanctions, which it had earlier asked for the right to impose.

"It is clear that the Byrd Amendment is a WTO-incompatible response to dumping and subsidisation and must go," Mr Lamy said.

The WTO ruled it illegal after the EU and 11 other nations, including Japan, Australia, Canada, Mexico, Brazil, Chile, India, Indonesia and South Korea, complained.

'Harm'

Mr Veroneau, however, claimed that the EU's request "does not appear to be based on actual harm to" exports.

"Accordingly, we will object to their proposed retaliation, sending this matter to arbitration," he said.

Japan's trade minister has said his country would ask for the right to impose sanctions worth $100m.

The EU has yet to spell out the size of the penalty it wants the right to impose.

However, Mr Lamy's spokeswoman Arancha Gonzalez said on Thursday that EU firms had been forced to pay more than $70m to the US under the law during 2003.

WTO rules mean any sanctions would take at least another two and a half months to be ratified.

Unfair

EU firms say it is unfair that they are forced to pay anti-dumping fines which are then distributed to their US competitors, providing them with unfair subsidies and an incentive to file trade complaints.

The WTO agreed with these criticisms in January 2003 and gave the US Congress almost a full year to amend the law.

That grace period expired on 27 January 2003, after which the EU and others got 30 days to register their desire to push ahead with their request for sanctions.

Under WTO rules, the global trade umpire will take a further 60 days to decide the appropriate level of sanctions.

Pressure

The Bush Administration may not find it easy to persuade Congress to ditch the Byrd law in an election year.

A BBC correspondent in Brussels, Quentin Sommerville, says that the EU's hopes its decision to go to the next procedural stage will bring enough pressure to force the US to act according to the rules.

The US Congress passed Senator Byrd's amendment in 2000.

At that time, the US and EU were at odds over the US tax breaks to its firm's overseas branches as well as the EU's preferential treatment of Caribbean banana exporters and its ban on sales of US hormone-treated beef.

The US backed down in 2003 in another trade war over steel.