US faces $4bn trade threat

Boeing is one of America's biggest exporters

The World Trade Organisation's dispute settlement body meets on Tuesday, in an attempt to settle a $4bn trade dispute between the European Union and the United States.

The EU has asked the WTO to impose up to $4bn (£2.8bn) worth of trade sanctions against the US in a dispute over US tax concessions for companies selling abroad.

The EU says that America's foreign sales corporation exemption gives unfair tax breaks to big US companies like Microsoft, Boeing, and GE, and has already won a preliminary ruling in its favour from the WTO.

Microsoft is alleged to be one of the companies that benefits from the subsidy

The request for sanctions revived fears of a trade war between Europe and the United States.

Fierce competition

The US put new laws in place on 16 November, which it says should meet European concerns.

However, EU officials say the new legislation doesn't go far enough.

"The case is of major importance for European companies as the sectors that benefit the most...chemical, pharmaceutical, mechanical machinery, electrical equipment and transport equipment, are sectors where US and EC companies fiercely compete," an EC statement said earlier this month.

Disputes process

Under WTO rules, the disputes panel - which has already ruled against the US in February - will have to examine again the new US tax laws to see whether they still give an unfair subsidy to US exporters.

If the panel backs the EU, the US would again be able to appeal, and if it lost, another panel would decide what level of sanctions were justified to compensate the EU for the damage suffered.

In practice, both parties may try and negotiate solutions to several trade disputes at once.

This is not the only trade dispute outstanding between the two trading partners.

Beef and bananas

EU attempts to restrict imports of US beef treated with growth hormones have already been ruled illegal by the WTO.

The US has in place $116m in trade sanctions, with an additional $191m in sanctions designed to force the EU to give up its preferential treatment of Caribbean banana producers.

The US has already won two trade rulings against the EU in relation to beef and bananas, and has imposed hundreds of millions of dollars worth of sanctions on EU products.